FORM 10-Q
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x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
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|
OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
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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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¨
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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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PAGE
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PART I.
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FINANCIAL INFORMATION
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Item 1.
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Unaudited Consolidated Financial Statements of Ambac Financial Group, Inc. and Subsidiaries
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Item 2.
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Item 3.
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Item 4.
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PART II.
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OTHER INFORMATION
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Item 1.
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Item 1A.
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Item 2.
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Item 3.
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Item 4.
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Item 5.
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Item 6.
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March 31,
|
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December 31,
|
||||
(Dollars in thousands, except share data) (March 31, 2018 (Unaudited))
|
2018
|
|
2017
|
||||
Assets:
|
|
|
|
||||
Investments:
|
|
|
|
||||
Fixed income securities, at fair value (amortized cost of $3,713,908 and $4,614,623)
|
$
|
3,871,938
|
|
|
$
|
4,652,172
|
|
Fixed income securities pledged as collateral, at fair value (amortized cost of $84,240 and $99,719)
|
84,240
|
|
|
99,719
|
|
||
Short-term investments, at fair value (amortized cost of $321,210 and $557,476)
|
321,119
|
|
|
557,270
|
|
||
Other investments (includes $383,687 and $396,689 at fair value)
|
419,896
|
|
|
431,630
|
|
||
Total investments
|
4,697,193
|
|
|
5,740,791
|
|
||
Cash and cash equivalents
|
38,485
|
|
|
623,703
|
|
||
Receivable for securities
|
2,376
|
|
|
11,177
|
|
||
Investment income due and accrued
|
20,457
|
|
|
16,532
|
|
||
Premium receivables
|
580,707
|
|
|
586,312
|
|
||
Reinsurance recoverable on paid and unpaid losses
|
38,825
|
|
|
40,997
|
|
||
Deferred ceded premium
|
49,631
|
|
|
52,195
|
|
||
Subrogation recoverable
|
1,894,778
|
|
|
631,213
|
|
||
Loans
|
10,643
|
|
|
10,358
|
|
||
Derivative assets
|
60,196
|
|
|
73,199
|
|
||
Current taxes
|
20,180
|
|
|
11,803
|
|
||
Insurance intangible asset
|
833,040
|
|
|
846,973
|
|
||
Other assets
|
36,332
|
|
|
46,614
|
|
||
Variable interest entity assets:
|
|
|
|
||||
Fixed income securities, at fair value
|
2,955,763
|
|
|
2,914,145
|
|
||
Restricted cash
|
1,134
|
|
|
978
|
|
||
Loans, at fair value
|
11,558,331
|
|
|
11,529,384
|
|
||
Derivative assets
|
46,260
|
|
|
54,877
|
|
||
Other assets
|
3,635
|
|
|
1,123
|
|
||
Total assets
|
$
|
22,847,966
|
|
|
$
|
23,192,374
|
|
Liabilities and Stockholders’ Equity:
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Unearned premiums
|
$
|
762,240
|
|
|
$
|
783,155
|
|
Loss and loss expense reserves
|
2,139,101
|
|
|
4,745,015
|
|
||
Ceded premiums payable
|
36,451
|
|
|
37,876
|
|
||
Deferred taxes
|
34,804
|
|
|
33,659
|
|
||
Long-term debt
|
2,957,732
|
|
|
991,696
|
|
||
Accrued interest payable
|
244,199
|
|
|
436,984
|
|
||
Derivative liabilities
|
71,584
|
|
|
82,782
|
|
||
Other liabilities
|
55,209
|
|
|
67,583
|
|
||
Payable for securities purchased
|
8,849
|
|
|
1,932
|
|
||
Variable interest entity liabilities:
|
|
|
|
||||
Accrued interest payable
|
3,005
|
|
|
589
|
|
||
Long-term debt, at fair value
|
12,270,124
|
|
|
12,160,544
|
|
||
Derivative liabilities
|
2,155,456
|
|
|
2,205,264
|
|
||
Other liabilities
|
47
|
|
|
37
|
|
||
Total liabilities
|
20,738,801
|
|
|
21,547,116
|
|
||
Commitments and contingencies (See Note 12)
|
|
|
|
||||
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: 45,365,170 and 45,275,982
|
454
|
|
|
453
|
|
||
Additional paid-in capital
|
204,172
|
|
|
199,560
|
|
||
Accumulated other comprehensive income (loss)
|
99,476
|
|
|
(52,239
|
)
|
||
Retained earnings
|
1,541,464
|
|
|
1,233,845
|
|
||
Treasury stock, shares at cost: 32,956 and
24,816
|
(511
|
)
|
|
(471
|
)
|
||
Total Ambac Financial Group, Inc. stockholders’ equity
|
1,845,055
|
|
|
1,381,148
|
|
||
Noncontrolling interest
|
264,110
|
|
|
264,110
|
|
||
Total stockholders’ equity
|
2,109,165
|
|
|
1,645,258
|
|
||
Total liabilities and stockholders’ equity
|
$
|
22,847,966
|
|
|
$
|
23,192,374
|
|
|
|
Three Months Ended March 31,
|
||||||
(Dollars in thousands, except share data)
|
|
2018
|
|
2017
|
||||
Revenues:
|
|
|
|
|
||||
Net premiums earned
|
|
$
|
30,883
|
|
|
$
|
47,613
|
|
Net investment income:
|
|
|
|
|
||||
Securities available-for-sale and short-term
|
|
110,551
|
|
|
73,150
|
|
||
Other investments
|
|
(311
|
)
|
|
8,409
|
|
||
Total net investment income
|
|
110,240
|
|
|
81,559
|
|
||
Other-than-temporary impairment losses:
|
|
|
|
|
||||
Total other-than-temporary impairment losses
|
|
(341
|
)
|
|
(21,154
|
)
|
||
Portion of other-than-temporary impairment recognized in other comprehensive income
|
|
42
|
|
|
17,212
|
|
||
Net other-than-temporary impairment losses recognized in earnings
|
|
(299
|
)
|
|
(3,942
|
)
|
||
Net realized investment gains (losses)
|
|
4,862
|
|
|
(4,896
|
)
|
||
Change in fair value of credit derivatives:
|
|
|
|
|
||||
Realized gains and other settlements
|
|
106
|
|
|
199
|
|
||
Unrealized gains (losses)
|
|
(452
|
)
|
|
853
|
|
||
Net change in fair value of credit derivatives
|
|
(346
|
)
|
|
1,052
|
|
||
Net gains (losses) on interest rate derivatives
|
|
25,537
|
|
|
(1,514
|
)
|
||
Net realized gains (losses) on extinguishment of debt
|
|
3,115
|
|
|
2,741
|
|
||
Other income (expense)
|
|
(509
|
)
|
|
58
|
|
||
Income (loss) on variable interest entities
|
|
574
|
|
|
3,701
|
|
||
Total revenues
|
|
174,057
|
|
|
126,372
|
|
||
Expenses:
|
|
|
|
|
||||
Losses and loss expenses (benefit)
|
|
(247,395
|
)
|
|
135,011
|
|
||
Insurance intangible amortization
|
|
28,636
|
|
|
37,525
|
|
||
Operating expenses
|
|
36,434
|
|
|
28,124
|
|
||
Interest expense
|
|
48,073
|
|
|
31,572
|
|
||
Total expenses
|
|
(134,252
|
)
|
|
232,232
|
|
||
Pre-tax income (loss)
|
|
308,309
|
|
|
(105,860
|
)
|
||
Provision for income taxes
|
|
2,605
|
|
|
19,581
|
|
||
Net income (loss) attributable to common stockholders
|
|
$
|
305,704
|
|
|
$
|
(125,441
|
)
|
Other comprehensive income (loss), after tax:
|
|
|
|
|
||||
Net income (loss)
|
|
$
|
305,704
|
|
|
$
|
(125,441
|
)
|
Unrealized gains (losses) on securities, net of income tax provision (benefit) of ($1,708) and $0
|
|
122,304
|
|
|
21,335
|
|
||
Gains (losses) on foreign currency translation, net of income tax provision of $0 and $0
|
|
32,056
|
|
|
12,593
|
|
||
Credit risk changes of fair value option liabilities, net of income tax provision of $230 and $0
|
|
1,114
|
|
|
—
|
|
||
Changes to postretirement benefit, net of income tax of $0 and $0
|
|
(859
|
)
|
|
2,287
|
|
||
Total other comprehensive income (loss), net of income tax
|
|
154,615
|
|
|
36,215
|
|
||
Total comprehensive income (loss) attributable to Ambac Financial Group, Inc.
|
|
$
|
460,319
|
|
|
$
|
(89,226
|
)
|
Net income (loss) per share attributable to Ambac Financial Group, Inc. common stockholders
|
|
|
|
|
||||
Basic
|
|
$
|
6.72
|
|
|
$
|
(2.77
|
)
|
Diluted
|
|
$
|
6.70
|
|
|
$
|
(2.77
|
)
|
|
|
|
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, 2018
|
$
|
1,645,258
|
|
|
$
|
1,233,845
|
|
|
$
|
(52,239
|
)
|
|
$
|
—
|
|
|
$
|
453
|
|
|
$
|
199,560
|
|
|
$
|
(471
|
)
|
|
$
|
264,110
|
|
Total comprehensive income
|
460,319
|
|
|
305,704
|
|
|
154,615
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjustment to initially apply ASU 2016-01
|
—
|
|
|
2,900
|
|
|
(2,900
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Stock-based compensation
|
4,612
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,612
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(1,025
|
)
|
|
(985
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40
|
)
|
|
—
|
|
||||||||
Issuance of common stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at March 31, 2018
|
$
|
2,109,165
|
|
|
$
|
1,541,464
|
|
|
$
|
99,476
|
|
|
$
|
—
|
|
|
$
|
454
|
|
|
$
|
204,172
|
|
|
$
|
(511
|
)
|
|
$
|
264,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Balance at January 1, 2017
|
$
|
1,978,024
|
|
|
$
|
1,557,681
|
|
|
$
|
(38,990
|
)
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
195,267
|
|
|
$
|
(496
|
)
|
|
$
|
264,110
|
|
Total comprehensive income
|
(89,226
|
)
|
|
(125,441
|
)
|
|
36,215
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjustment to initially apply ASU 2016-09
|
(137
|
)
|
|
(137
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Stock-based compensation
|
1,521
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1,521
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(1,267
|
)
|
|
(706
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(561
|
)
|
|
—
|
|
||||||||
Issuance of common stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at March 31, 2017
|
$
|
1,888,916
|
|
|
$
|
1,431,397
|
|
|
$
|
(2,775
|
)
|
|
$
|
—
|
|
|
$
|
453
|
|
|
$
|
196,788
|
|
|
$
|
(1,057
|
)
|
|
$
|
264,110
|
|
|
|
Three Months Ended March 31,
|
||||||
(Dollars in thousands)
|
|
2018
|
|
2017
|
||||
Cash flows from operating activities:
|
|
|
|
|
||||
Net income (loss) attributable to common stockholders
|
|
$
|
305,704
|
|
|
$
|
(125,441
|
)
|
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
||||
Depreciation and amortization
|
|
181
|
|
|
270
|
|
||
Amortization of bond premium and discount
|
|
(77,427
|
)
|
|
(36,178
|
)
|
||
Share-based compensation
|
|
4,612
|
|
|
1,521
|
|
||
Deferred income taxes
|
|
1,145
|
|
|
26
|
|
||
Current income taxes
|
|
(8,439
|
)
|
|
11,550
|
|
||
Unearned premiums, net
|
|
(18,329
|
)
|
|
(36,272
|
)
|
||
Losses and loss expenses, net
|
|
(1,371,840
|
)
|
|
131,188
|
|
||
Ceded premiums payable
|
|
(1,425
|
)
|
|
(2,328
|
)
|
||
Investment income due and accrued
|
|
(3,926
|
)
|
|
(1,250
|
)
|
||
Premium receivables
|
|
5,601
|
|
|
8,630
|
|
||
Accrued interest payable
|
|
(82,992
|
)
|
|
4,866
|
|
||
Amortization of insurance intangible assets
|
|
28,636
|
|
|
37,525
|
|
||
Net mark-to-market (gains) losses
|
|
452
|
|
|
(853
|
)
|
||
Net realized investment gains
|
|
(4,862
|
)
|
|
4,896
|
|
||
Other-than-temporary impairment charges
|
|
299
|
|
|
3,942
|
|
||
(Gain) loss on extinguishment of debt
|
|
(3,115
|
)
|
|
(2,741
|
)
|
||
Variable interest entity activities
|
|
(574
|
)
|
|
(3,701
|
)
|
||
Derivative assets and liabilities
|
|
438
|
|
|
(101
|
)
|
||
Other, net
|
|
34,299
|
|
|
(337
|
)
|
||
Net cash used in operating activities
|
|
(1,191,562
|
)
|
|
(4,788
|
)
|
||
Cash flows from investing activities:
|
|
|
|
|
||||
Proceeds from sales of bonds
|
|
296,078
|
|
|
305,541
|
|
||
Proceeds from matured bonds
|
|
103,995
|
|
|
227,741
|
|
||
Purchases of bonds
|
|
(77,469
|
)
|
|
(439,473
|
)
|
||
Proceeds from sales of other invested assets
|
|
31,327
|
|
|
121,353
|
|
||
Purchases of other invested assets
|
|
(11,758
|
)
|
|
(139,561
|
)
|
||
Change in short-term investments
|
|
236,262
|
|
|
83,550
|
|
||
Change in cash collateral receivable
|
|
(979
|
)
|
|
9,615
|
|
||
Proceeds from paydowns of consolidated VIE assets
|
|
79,917
|
|
|
64,946
|
|
||
Other, net
|
|
(377
|
)
|
|
(1,189
|
)
|
||
Net cash provided by investing activities
|
|
656,996
|
|
|
232,523
|
|
||
Cash flows from financing activities:
|
|
|
|
|
||||
Net proceeds from issuance of Tier II notes
|
|
240,000
|
|
|
—
|
|
||
Paydowns of a secured borrowing
|
|
(8,797
|
)
|
|
(10,355
|
)
|
||
Payments for investment agreement draws
|
|
—
|
|
|
(82,358
|
)
|
||
Payments for extinguishment of long-term debt
|
|
(191,258
|
)
|
|
(43,666
|
)
|
||
Payments for debt issuance costs
|
|
(9,221
|
)
|
|
—
|
|
||
Tax payments related to shares withheld for share-based compensation plans
|
|
(1,025
|
)
|
|
(1,268
|
)
|
||
Payments of consolidated VIE liabilities
|
|
(79,917
|
)
|
|
(62,672
|
)
|
||
Net cash used in financing activities
|
|
(50,218
|
)
|
|
(200,319
|
)
|
||
Effect of foreign exchange on cash, cash equivalents and restricted cash
|
|
(278
|
)
|
|
463
|
|
||
Net cash flow
|
|
(585,062
|
)
|
|
27,879
|
|
||
Cash, cash equivalents, and restricted cash at beginning of period
|
|
624,681
|
|
|
95,898
|
|
||
Cash, cash equivalents, and restricted cash at end of period
|
|
$
|
39,619
|
|
|
$
|
123,777
|
|
•
|
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.
|
•
|
Satisfaction and discharge of all outstanding Deferred Amounts (including accretion) of the Segregated Account, totaling
$3,856,992
;
|
•
|
Cancellation of
$552,320
in principal amount outstanding, plus accrued and unpaid interest of
$257,200
thereon, of AAC's
5.1%
surplus notes due
2020
(the "General Account Surplus Notes"); and
|
•
|
An effective discount of
6.5%
on Deferred Amounts (applied first against accretion) and the outstanding amount of principal and accrued and unpaid interest on tendered General Account Surplus Notes
|
•
|
Remeasurement of loss reserves, classified in Loss and loss expenses, in the amount of
$11,016
and
$5,827
for the
three months ended
March 31, 2018 and 2017
, respectively;
|
•
|
Realized gain (losses) from the sale of investment securities and the unrealized gains (losses) on trading and short-term investment securities, classified in Net realized investment gains, in the amount of
$(4,804)
and
$1,916
for the
three months ended
March 31, 2018 and 2017
, respectively;
|
•
|
Remeasurement of premium receivables, classified in Other income, in the amount of
$(1,387)
and
$(560)
for the
three months ended
March 31, 2018 and 2017
, respectively; and
|
•
|
Remeasurement of credit derivative liabilities, classified in Net change in fair value of credit derivative, in the amount of
$(25)
and
$(706)
for the
three months ended
March 31, 2018 and 2017
, respectively.
|
|
|
Three Months Ended March 31,
|
||||
|
|
2018
|
|
2017
|
||
Cash paid during the period for:
|
|
|
|
|
||
Income taxes
|
|
9,718
|
|
|
8,295
|
|
Interest on long-term debt and investment agreements
|
|
100,958
|
|
|
20,496
|
|
Non-cash financing activities:
|
|
|
|
|
||
Decrease in long-term debt as a result of an exchange for investment securities
|
|
—
|
|
|
55,426
|
|
Reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets to the Consolidated Statements of Cash Flows:
|
|
|
|
|
||
Cash and cash equivalents
|
|
38,485
|
|
|
118,772
|
|
Restricted cash
|
|
1,134
|
|
|
5,005
|
|
Total cash, cash equivalents, and restricted cash shown on the Consolidated Statements of Cash Flows
|
|
39,619
|
|
|
123,777
|
|
•
|
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 investors for various purposes.
|
•
|
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 loan 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.
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2018
|
|
2017
|
||||
Income (loss) on changes related to:
|
|
|
|
|
||||
Net change in fair value of VIE assets and liabilities
|
|
$
|
1,918
|
|
|
$
|
3,701
|
|
Less: Credit risk changes of fair value liabilities
|
|
(1,344
|
)
|
|
—
|
|
||
Consolidation / Deconsolidation
|
|
—
|
|
|
—
|
|
||
Income (loss) on Variable Interest Entities
|
|
$
|
574
|
|
|
$
|
3,701
|
|
|
March 31,
2018 |
|
December 31,
2017 |
||||
Investments:
|
|
|
|
||||
Corporate obligations
|
$
|
2,955,763
|
|
|
$
|
2,914,145
|
|
Total variable interest entity assets: fixed income securities
|
$
|
2,955,763
|
|
|
$
|
2,914,145
|
|
|
Estimated Fair Value
|
|
Unpaid Principal Balance
|
||||
March 31, 2018:
|
|
|
|
||||
Loans
|
$
|
11,558,331
|
|
|
$
|
8,413,664
|
|
Long-term debt
|
12,270,124
|
|
|
9,679,441
|
|
||
December 31, 2017:
|
|
|
|
||||
Loans
|
$
|
11,529,384
|
|
|
$
|
8,168,651
|
|
Long-term debt
|
12,160,544
|
|
|
9,387,884
|
|
•
|
Total principal amount of debt outstanding was
$436,080
and
$420,600
at
March 31, 2018 and December 31, 2017
, 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
March 31, 2018
and weighted average life of
2.9 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
March 31, 2018
Ambac Assurance had financial guarantee insurance policies issued for all assets, MTNs and derivative contracts owned and outstanding by the entity.
|
•
|
Insurance premiums paid to Ambac Assurance 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 du
e 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) |
||||||||
March 31, 2018:
|
|
|
|
|
|
|
|
||||||||
Global structured finance:
|
|
|
|
|
|
|
|
||||||||
Collateralized debt obligations
|
$
|
31,644
|
|
|
$
|
157
|
|
|
$
|
2
|
|
|
$
|
(13
|
)
|
Mortgage-backed—residential
|
8,033,584
|
|
|
1,742,097
|
|
|
670,052
|
|
|
—
|
|
||||
Other consumer asset-backed
|
2,209,778
|
|
|
22,416
|
|
|
331,147
|
|
|
—
|
|
||||
Other commercial asset-backed
|
934,919
|
|
|
27,527
|
|
|
30,837
|
|
|
—
|
|
||||
Other
|
2,482,479
|
|
|
57,718
|
|
|
302,232
|
|
|
7,751
|
|
||||
Total global structured finance
|
13,692,404
|
|
|
1,849,915
|
|
|
1,334,270
|
|
|
7,738
|
|
||||
Global public finance
|
25,695,196
|
|
|
345,678
|
|
|
379,521
|
|
|
(1,005
|
)
|
||||
Total
|
$
|
39,387,600
|
|
|
$
|
2,195,593
|
|
|
$
|
1,713,791
|
|
|
$
|
6,733
|
|
|
|
|
|
|
|
|
|
||||||||
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
|
|
(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. On February 12, 2018, all Deferred Amounts and Interest Accrued on Deferred Amounts were settled in connection with the Rehabilitation Exit Transactions. 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) |
|
Credit Risk Changes of Fair Value Option Liabilities
(1) (2)
|
|
Total
|
||||||||||
Three Months Ended March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning Balance
|
|
$
|
30,755
|
|
|
$
|
10,640
|
|
|
$
|
(93,634
|
)
|
|
$
|
—
|
|
|
$
|
(52,239
|
)
|
Adjustment to opening balance, net of taxes
(3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,900
|
)
|
|
(2,900
|
)
|
|||||
Adjusted balance, beginning of period
|
|
30,755
|
|
|
10,640
|
|
|
(93,634
|
)
|
|
(2,900
|
)
|
|
(55,139
|
)
|
|||||
Other comprehensive income (loss) before reclassifications
|
|
125,159
|
|
|
(556
|
)
|
|
32,056
|
|
|
—
|
|
|
156,659
|
|
|||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
(2,855
|
)
|
|
(303
|
)
|
|
—
|
|
|
1,114
|
|
|
(2,044
|
)
|
|||||
Net current period other comprehensive income (loss)
|
|
122,304
|
|
|
(859
|
)
|
|
32,056
|
|
|
1,114
|
|
|
154,615
|
|
|||||
Balance at March 31, 2018
|
|
$
|
153,059
|
|
|
$
|
9,781
|
|
|
$
|
(61,578
|
)
|
|
$
|
(1,786
|
)
|
|
$
|
99,476
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Three Months Ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning Balance
|
|
$
|
118,863
|
|
|
$
|
9,367
|
|
|
$
|
(167,220
|
)
|
|
$
|
—
|
|
|
$
|
(38,990
|
)
|
Other comprehensive income (loss) before reclassifications
|
|
12,500
|
|
|
2,625
|
|
|
12,593
|
|
|
—
|
|
|
27,718
|
|
|||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
8,835
|
|
|
(338
|
)
|
|
—
|
|
|
—
|
|
|
8,497
|
|
|||||
Net current period other comprehensive income (loss)
|
|
21,335
|
|
|
2,287
|
|
|
12,593
|
|
|
—
|
|
|
36,215
|
|
|||||
Balance at March 31, 2017
|
|
$
|
140,198
|
|
|
$
|
11,654
|
|
|
$
|
(154,627
|
)
|
|
$
|
—
|
|
|
$
|
(2,775
|
)
|
(1)
|
All amounts are net of tax and noncontrolling interest. Amounts in parentheses indicate reductions to Accumulated Other Comprehensive Income.
|
(2)
|
Represents the changes in fair value attributable to instrument-specific credit risk of liabilities for which the fair value option is elected.
|
(3)
|
Beginning in 2018, Credit risk changes of fair value option liabilities are reflected as a component of
Accumulated Other Comprehensive Income
pursuant to the adoption of ASU 2016-01. See Note 2 to the Consolidated Financial Statements included in this Form 10-Q for further information regarding this change.
|
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 (Loss) |
||||||
|
Three Months Ended March 31,
|
|
||||||||
|
2018
|
|
2017
|
|
||||||
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
|
|
|
|
|
||||
|
|
$
|
(4,563
|
)
|
|
$
|
8,835
|
|
|
Net realized investment gains (losses) and other-than-temporary impairment losses
|
|
|
1,708
|
|
|
—
|
|
|
Provision for income taxes
|
||
|
|
$
|
(2,855
|
)
|
|
$
|
8,835
|
|
|
Net of tax and noncontrolling interest
|
Amortization of Postretirement Benefit
|
|
|
|
|
|
|
||||
Prior service cost
|
|
$
|
(241
|
)
|
|
$
|
(241
|
)
|
|
Other income
(2)
|
Actuarial (losses)
|
|
(62
|
)
|
|
(97
|
)
|
|
Other income
(2)
|
||
|
|
(303
|
)
|
|
(338
|
)
|
|
Total before tax
|
||
|
|
—
|
|
|
—
|
|
|
Provision for income taxes
|
||
|
|
(303
|
)
|
|
(338
|
)
|
|
Net of tax and noncontrolling interest
|
||
Credit risk changes of fair value option liabilities
|
|
|
|
|
|
|
||||
|
|
$
|
1,344
|
|
|
$
|
—
|
|
|
Credit Risk Changes of Fair Value Option Liabilities
|
|
|
(230
|
)
|
|
—
|
|
|
Provision for income taxes
|
||
|
|
$
|
1,114
|
|
|
$
|
—
|
|
|
Net of tax and noncontrolling interest
|
Total reclassifications for the period
|
|
$
|
(2,044
|
)
|
|
$
|
8,497
|
|
|
Net of tax and noncontrolling interest
|
(1)
|
Amounts in parentheses indicate reductions to Accumulated Other Comprehensive Income with corresponding increases to the affected line items in the Consolidated Statement of Total Comprehensive Income.
|
(2)
|
These accumulated other comprehensive income components are included in the computation of net periodic benefit cost.
|
|
|
Three Months Ended March 31,
|
||||
|
|
2018
|
|
2017
|
||
Basic weighted average shares outstanding
|
|
45,471,083
|
|
|
45,292,253
|
|
Effect of potential dilutive shares
(1)
:
|
|
|
|
|
||
Warrants
|
|
—
|
|
|
—
|
|
Restricted stock units
|
|
45,713
|
|
|
—
|
|
Performance stock units
|
|
136,675
|
|
|
—
|
|
Diluted weighted average shares outstanding
|
|
45,653,471
|
|
|
45,292,253
|
|
Anti-dilutive shares excluded from the above reconciliation:
|
|
|
|
|
||
Stock options
|
|
126,667
|
|
|
126,667
|
|
Warrants
|
|
4,053,476
|
|
|
4,053,670
|
|
Restricted stock units
|
|
—
|
|
|
94,204
|
|
Performance stock units
(2)
|
|
—
|
|
|
342,456
|
|
(1)
|
For the
three months ended March 31, 2017
, Ambac had 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.
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2018
|
|
2017
|
||||
Beginning premium receivable
|
|
$
|
586,312
|
|
|
$
|
661,337
|
|
Premium receipts
|
|
(15,381
|
)
|
|
(17,978
|
)
|
||
Adjustments for changes in expected and contractual cash flows
|
|
(1,289
|
)
|
|
1,352
|
|
||
Accretion of premium receivable discount
|
|
3,846
|
|
|
4,244
|
|
||
Changes to uncollectable premiums
|
|
604
|
|
|
(12
|
)
|
||
Other adjustments (including foreign exchange)
|
|
6,615
|
|
|
3,734
|
|
||
Ending premium receivable
(1)
|
|
$
|
580,707
|
|
|
$
|
652,677
|
|
(1)
|
Gross premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At
March 31, 2018 and 2017
, premium receivables include British Pounds of
$163,926
(
£116,815
) and
$185,204
(
£147,726
), respectively, and Euros of
$36,679
(
€29,767
) and
$34,908
(
€32,671
), respectively.
|
|
Three Months Ended March 31,
|
||||||||||||||
|
2018
|
|
2017
|
||||||||||||
|
Written
|
|
Earned
|
|
Written
|
|
Earned
|
||||||||
Direct
|
$
|
4,261
|
|
|
$
|
32,609
|
|
|
$
|
5,584
|
|
|
$
|
52,065
|
|
Assumed
|
—
|
|
|
19
|
|
|
—
|
|
|
21
|
|
||||
Ceded
|
(819
|
)
|
|
1,745
|
|
|
(1,815
|
)
|
|
4,473
|
|
||||
Net premiums
|
$
|
5,080
|
|
|
$
|
30,883
|
|
|
$
|
7,399
|
|
|
$
|
47,613
|
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2018
|
|
2017
|
||||
United States
|
|
$
|
24,718
|
|
|
$
|
40,621
|
|
United Kingdom
|
|
4,856
|
|
|
5,263
|
|
||
Other international
|
|
1,309
|
|
|
1,729
|
|
||
Total
|
|
$
|
30,883
|
|
|
$
|
47,613
|
|
|
Future Premiums
to be Collected (1) |
|
Future
Premiums to be Earned Net of Reinsurance (1) |
||||
Three months ended:
|
|
|
|
||||
June 30, 2018
|
$
|
14,957
|
|
|
$
|
17,037
|
|
September 30, 2018
|
14,771
|
|
|
16,388
|
|
||
December 31, 2018
|
12,947
|
|
|
15,946
|
|
||
Twelve months ended:
|
|
|
|
||||
December 31, 2019
|
55,142
|
|
|
60,697
|
|
||
December 31, 2020
|
52,344
|
|
|
56,759
|
|
||
December 31, 2021
|
45,913
|
|
|
51,792
|
|
||
December 31, 2022
|
43,923
|
|
|
48,292
|
|
||
Five years ended:
|
|
|
|
||||
December 31, 2027
|
195,614
|
|
|
196,972
|
|
||
December 31, 2032
|
153,584
|
|
|
132,598
|
|
||
December 31, 2037
|
85,689
|
|
|
73,307
|
|
||
December 31, 2042
|
31,028
|
|
|
25,070
|
|
||
December 31, 2047
|
14,425
|
|
|
12,798
|
|
||
December 31, 2052
|
3,620
|
|
|
4,656
|
|
||
December 31, 2057
|
92
|
|
|
297
|
|
||
Total
|
$
|
724,049
|
|
|
$
|
712,609
|
|
(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
in the Notes to Consolidated Financial Statements included in Ambac's Annual Report on Form 10-K for the year ended
December 31, 2017
. 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 represent the sum of (i) claims presented and not yet paid for policies allocated to the Segregated Account, including Deferred Amounts and (ii) accrued interest on Deferred Amounts as required by the amended Segregated Account Rehabilitation Plan that became effective on June 12, 2014. As a result of the Rehabilitation Exit Transactions, as of February 12, 2018, all unpaid claims for policies allocated to the Segregated Account were fully satisfied and discharged.
|
•
|
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 ("R&W") by transaction sponsors, (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.
|
|
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 |
||||||||||||
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss and loss expense reserves
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,592,778
|
|
|
$
|
(324,936
|
)
|
|
$
|
(128,741
|
)
|
|
$
|
2,139,101
|
|
Subrogation recoverable
|
—
|
|
|
—
|
|
|
275,425
|
|
|
(2,170,203
|
)
|
|
—
|
|
|
(1,894,778
|
)
|
||||||
Totals
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,868,203
|
|
|
$
|
(2,495,139
|
)
|
|
$
|
(128,741
|
)
|
|
$
|
244,323
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
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
|
|
|
Three Months Ended March 31,
|
||||||
|
2018
|
|
2017
|
||||
Beginning gross loss and loss expense reserves
|
$
|
4,113,802
|
|
|
$
|
3,696,038
|
|
Reinsurance recoverable
|
40,658
|
|
|
30,767
|
|
||
Beginning balance of net loss and loss expense reserves
|
4,073,144
|
|
|
3,665,271
|
|
||
Losses and loss expenses (benefit):
|
|
|
|
||||
Current year
|
778
|
|
|
1,543
|
|
||
Prior year
|
(248,173
|
)
|
|
133,468
|
|
||
Total
(1) (2) (3)
|
(247,395
|
)
|
|
135,011
|
|
||
Loss and loss expenses (recovered) paid:
|
|
|
|
||||
Current year
|
—
|
|
|
696
|
|
||
Prior year
(3)
|
3,631,177
|
|
|
9,749
|
|
||
Total
|
3,631,177
|
|
|
10,445
|
|
||
Foreign exchange effect
|
11,016
|
|
|
5,827
|
|
||
Ending net loss and loss expense reserves
|
205,588
|
|
|
3,795,664
|
|
||
Reinsurance recoverable
(4)
|
38,735
|
|
|
34,691
|
|
||
Ending gross loss and loss expense reserves
(5)
|
$
|
244,323
|
|
|
$
|
3,830,355
|
|
(1)
|
Total losses and loss expenses (benefit) includes
$1,354
and
$(4,112)
for the
three months ended March 31, 2018 and 2017
, 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
three months ended March 31, 2018 and 2017
was
$800
and
$13,797
, respectively.
|
(3)
|
On February 12, 2018, Deferred Amounts and Interest Accrued on Deferred Amounts in the amount of
$3,000,158
and
$856,834
, respectively were settled in connection with the Rehabilitation Exit Transactions. 2018 includes a
$288,204
loss and loss expense benefit on these settled Deferred Amounts.
|
(4)
|
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
$90
and
$(418)
as of
March 31, 2018 and 2017
, respectively, related to previously presented loss and loss expenses and subrogation.
|
(5)
|
Includes Euro denominated gross loss and loss expense reserves of
$21,398
(
€17,366
) and
$20,984
(
€19,639
) at
March 31, 2018 and 2017
, respectively.
|
Surveillance Categories as of March 31, 2018
|
|||||||||||||||||||||||||||
|
I
|
|
IA
|
|
II
|
|
III
|
|
IV
|
|
V
|
|
Total
|
||||||||||||||
Number of policies
|
25
|
|
|
26
|
|
|
15
|
|
|
23
|
|
|
157
|
|
|
4
|
|
|
250
|
|
|||||||
Remaining weighted-average contract period (in years)
(1)
|
10
|
|
|
22
|
|
|
10
|
|
|
23
|
|
|
12
|
|
|
4
|
|
|
16
|
|
|||||||
Gross insured contractual payments outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Principal
|
$
|
967,427
|
|
|
$
|
576,858
|
|
|
$
|
642,281
|
|
|
$
|
2,013,845
|
|
|
$
|
6,350,960
|
|
|
$
|
48,562
|
|
|
$
|
10,599,933
|
|
Interest
|
500,680
|
|
|
601,901
|
|
|
243,259
|
|
|
7,195,260
|
|
|
2,359,913
|
|
|
16,332
|
|
|
10,917,345
|
|
|||||||
Total
|
$
|
1,468,107
|
|
|
$
|
1,178,759
|
|
|
$
|
885,540
|
|
|
$
|
9,209,105
|
|
|
$
|
8,710,873
|
|
|
$
|
64,894
|
|
|
$
|
21,517,278
|
|
Gross undiscounted claim liability
|
$
|
4,264
|
|
|
$
|
56,682
|
|
|
$
|
59,584
|
|
|
$
|
1,449,879
|
|
|
$
|
2,543,988
|
|
|
$
|
64,861
|
|
|
$
|
4,179,258
|
|
Discount, gross claim liability
|
(514
|
)
|
|
(13,866
|
)
|
|
(9,724
|
)
|
|
(693,598
|
)
|
|
(675,210
|
)
|
|
(5,113
|
)
|
|
(1,398,025
|
)
|
|||||||
Gross claim liability before all subrogation and before reinsurance
|
3,750
|
|
|
42,816
|
|
|
49,860
|
|
|
756,281
|
|
|
1,868,778
|
|
|
59,748
|
|
|
2,781,233
|
|
|||||||
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross RMBS subrogation
(2)
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,861,894
|
)
|
|
—
|
|
|
(1,861,894
|
)
|
|||||||
Discount, RMBS subrogation
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28,384
|
|
|
—
|
|
|
28,384
|
|
|||||||
Discounted RMBS subrogation, before reinsurance
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,833,510
|
)
|
|
—
|
|
|
(1,833,510
|
)
|
|||||||
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross other subrogation
(3)
|
—
|
|
|
(8,604
|
)
|
|
(4
|
)
|
|
(53,703
|
)
|
|
(675,089
|
)
|
|
(13,138
|
)
|
|
(750,538
|
)
|
|||||||
Discount, other subrogation
|
—
|
|
|
5,810
|
|
|
—
|
|
|
9,497
|
|
|
69,630
|
|
|
3,972
|
|
|
88,909
|
|
|||||||
Discounted other subrogation, before reinsurance
|
—
|
|
|
(2,794
|
)
|
|
(4
|
)
|
|
(44,206
|
)
|
|
(605,459
|
)
|
|
(9,166
|
)
|
|
(661,629
|
)
|
|||||||
Gross claim liability, net of all subrogation and discounts, before reinsurance
|
3,750
|
|
|
40,022
|
|
|
49,856
|
|
|
712,075
|
|
|
(570,191
|
)
|
|
50,582
|
|
|
286,094
|
|
|||||||
Less: Unearned premium revenue
|
(1,586
|
)
|
|
(10,092
|
)
|
|
(9,810
|
)
|
|
(44,754
|
)
|
|
(62,241
|
)
|
|
(258
|
)
|
|
(128,741
|
)
|
|||||||
Plus: Loss expense reserves
|
16,141
|
|
|
3,082
|
|
|
582
|
|
|
11,146
|
|
|
56,019
|
|
|
—
|
|
|
86,970
|
|
|||||||
Gross loss and loss expense reserves
|
$
|
18,305
|
|
|
$
|
33,012
|
|
|
$
|
40,628
|
|
|
$
|
678,467
|
|
|
$
|
(576,413
|
)
|
|
$
|
50,324
|
|
|
$
|
244,323
|
|
Reinsurance recoverable reported on Balance Sheet
(4)
|
$
|
238
|
|
|
$
|
4,448
|
|
|
$
|
8,368
|
|
|
$
|
38,603
|
|
|
$
|
(12,832
|
)
|
|
$
|
—
|
|
|
$
|
38,825
|
|
(1)
|
Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.
|
(2)
|
RMBS subrogation represents Ambac’s estimate of subrogation recoveries from RMBS transaction sponsors for representation and warranty ("R&W") breaches.
|
(3)
|
Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.
|
(4)
|
Reinsurance recoverable reported on the Balance Sheet includes reinsurance recoverables of
$38,735
related to future loss and loss expenses and
$90
related to presented loss and loss expenses and subrogation.
|
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 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.
|
|
|
Gross Loss
Reserves Before Subrogation Recoveries (1) |
|
Subrogation
Recoveries (2)(3) |
|
Gross Loss
Reserves After Subrogation Recoveries |
||||||
At March 31, 2018
|
|
$
|
171,999
|
|
|
$
|
(1,833,510
|
)
|
|
$
|
(1,661,511
|
)
|
|
|
|
|
|
|
|
||||||
At December 31, 2017
|
|
$
|
1,366,483
|
|
|
$
|
(1,834,387
|
)
|
|
$
|
(467,904
|
)
|
(1)
|
Amount represents gross loss reserves
for
policies that have established a representation and warranty subrogation recovery.
December 31, 2017 includes unpaid RMBS claims (including accrued interest on Deferred Amounts) on policies allocated to the Segregated Account, such balances have been settled via the Rehabilitation Exit Transactions.
|
(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 out 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.
|
|
Three Months Ended March 31,
|
||||||
|
2018
|
|
2017
|
||||
Discounted R&W subrogation (gross of reinsurance) at beginning of period
|
$
|
1,834,387
|
|
|
$
|
1,907,035
|
|
Changes recognized during the period:
|
|
|
|
||||
All other changes
(1)
|
(877
|
)
|
|
(14,061
|
)
|
||
Discounted R&W subrogation (gross of reinsurance) at end of period
|
$
|
1,833,510
|
|
|
$
|
1,892,974
|
|
(1)
|
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. 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.
|
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
Thereafter
|
||||||||||||
Amortization expense
(1)
|
|
$
|
55,687
|
|
|
$
|
68,517
|
|
|
$
|
63,475
|
|
|
$
|
57,891
|
|
|
$
|
53,816
|
|
|
$
|
533,654
|
|
(1)
|
Future amortization considers the use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral. Actual maturities will differ from contractual maturities because
borrowers may have the right to call or prepay certain obligations. If those bonds types are retired early, amortization expense may differ in the period of call or refinancing.
|
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 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:
|
||||||||||||||
March 31, 2018:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
855,387
|
|
|
$
|
855,387
|
|
|
$
|
—
|
|
|
$
|
855,387
|
|
|
$
|
—
|
|
Corporate obligations
|
|
1,438,993
|
|
|
1,438,993
|
|
|
450
|
|
|
1,438,543
|
|
|
—
|
|
|||||
Foreign obligations
|
|
26,395
|
|
|
26,395
|
|
|
25,492
|
|
|
903
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
87,261
|
|
|
87,261
|
|
|
87,261
|
|
|
—
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
823,296
|
|
|
823,296
|
|
|
—
|
|
|
817,987
|
|
|
5,309
|
|
|||||
Collateralized debt obligations
|
|
50,958
|
|
|
50,958
|
|
|
—
|
|
|
50,958
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
589,648
|
|
|
589,648
|
|
|
—
|
|
|
517,327
|
|
|
72,321
|
|
|||||
Fixed income securities, pledged as collateral:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. government obligations
|
|
84,240
|
|
|
84,240
|
|
|
84,240
|
|
|
—
|
|
|
—
|
|
|||||
Short term investments
|
|
321,119
|
|
|
321,119
|
|
|
269,171
|
|
|
51,948
|
|
|
—
|
|
|||||
Other investments
(1)
|
|
419,896
|
|
|
402,072
|
|
|
57,535
|
|
|
—
|
|
|
18,385
|
|
|||||
Cash and cash equivalents
|
|
38,485
|
|
|
38,485
|
|
|
35,033
|
|
|
3,452
|
|
|
—
|
|
|||||
Loans
|
|
10,643
|
|
|
12,042
|
|
|
—
|
|
|
—
|
|
|
12,042
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—asset position
|
|
60,198
|
|
|
60,198
|
|
|
—
|
|
|
9,272
|
|
|
50,926
|
|
|||||
Interest rate swaps—liability position
|
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
|||||
Other assets
|
|
5,621
|
|
|
5,621
|
|
|
—
|
|
|
—
|
|
|
5,621
|
|
|||||
Variable interest entity assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate obligations
|
|
2,955,763
|
|
|
2,955,763
|
|
|
—
|
|
|
—
|
|
|
2,955,763
|
|
|||||
Restricted cash
|
|
1,134
|
|
|
1,134
|
|
|
1,134
|
|
|
—
|
|
|
—
|
|
|||||
Loans
|
|
11,558,331
|
|
|
11,558,331
|
|
|
—
|
|
|
—
|
|
|
11,558,331
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps-asset position
|
|
46,260
|
|
|
46,260
|
|
|
—
|
|
|
46,260
|
|
|
—
|
|
|||||
Total financial assets
|
|
$
|
19,289,386
|
|
|
$
|
19,272,961
|
|
|
$
|
476,076
|
|
|
$
|
3,792,035
|
|
|
$
|
14,678,698
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long term debt, including accrued interest
|
|
$
|
3,201,931
|
|
|
$
|
3,265,029
|
|
|
$
|
—
|
|
|
$
|
2,651,952
|
|
|
$
|
613,077
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
|
1,018
|
|
|
1,018
|
|
|
—
|
|
|
—
|
|
|
1,018
|
|
|||||
Interest rate swaps—liability position
|
|
70,566
|
|
|
70,566
|
|
|
—
|
|
|
70,566
|
|
|
—
|
|
|||||
Liabilities for net financial guarantees written
(2)
|
|
(432,722
|
)
|
|
900,880
|
|
|
—
|
|
|
—
|
|
|
900,880
|
|
|||||
Variable interest entity liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt
|
|
12,270,124
|
|
|
12,270,124
|
|
|
—
|
|
|
9,573,607
|
|
|
2,696,517
|
|
|||||
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—liability position
|
|
2,155,456
|
|
|
2,155,456
|
|
|
—
|
|
|
2,155,456
|
|
|
—
|
|
|||||
Total financial liabilities
|
|
$
|
17,266,373
|
|
|
$
|
18,663,073
|
|
|
$
|
—
|
|
|
$
|
14,451,581
|
|
|
$
|
4,211,492
|
|
|
|
Carrying
Amount |
|
Total Fair
Value |
|
Fair Value Measurements Categorized as:
|
||||||||||||||
December 31, 2017:
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||||||||
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
|
|
(1)
|
Excluded from the fair value measurement categories in the table above are investment funds of
$326,152
and
$310,441
as of
March 31, 2018 and December 31, 2017
, 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.
|
March 31, 2018
|
|
December 31, 2017:
|
||
a. Coupon rate:
|
2.38%
|
|
a. Coupon rate:
|
2.05%
|
b. Average Life:
|
1.42 years
|
|
b. Average Life:
|
0.65 years
|
c. Yield:
|
10.00%
|
|
c. Yield:
|
10.00%
|
March 31, 2018:
|
|
December 31, 2017:
|
||
a. Coupon rate:
|
5.97%
|
|
a. Coupon rate:
|
5.97%
|
b. Average Life:
|
16.84 years
|
|
b. Maturity:
|
17.02 years
|
c. Yield:
|
12.00%
|
|
c. Yield:
|
12.00%
|
|
March 31,
2018 |
|
December 31, 2017
|
|||||
Number of CDS transactions
|
|
2
|
|
|
2
|
|
||
Notional outstanding
|
|
$
|
330,656
|
|
|
$
|
325,890
|
|
Weighted average reference obligation price
|
|
98.6
|
|
|
99.3
|
|
||
Weighted average life (WAL) in years
|
|
6.3
|
|
|
6.5
|
|
||
Weighted average credit rating
|
|
A
|
|
|
A
|
|
||
Weighted average relative change ratio
|
|
23.4
|
%
|
|
23.6
|
%
|
||
CVA percentage
|
|
9.25
|
%
|
|
9.64
|
%
|
||
Fair value of derivative liabilities
|
|
$
|
1,018
|
|
|
$
|
566
|
|
March 31, 2018:
|
|
December 31, 2017:
|
||
a. Coupon rate:
|
0.37%
|
|
a. Coupon rate:
|
0.40%
|
b. Maturity:
|
15.06 years
|
|
b. Maturity:
|
15.28 years
|
c. Yield:
|
5.35%
|
|
c. Yield:
|
4.82%
|
Level 3 - Financial Assets and Liabilities Accounted for at Fair Value
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
VIE Assets and Liabilities
|
|
|
||||||||||||||||||
|
|
Investments
|
|
Other
Assets |
|
Derivatives
|
|
Investments
|
|
Loans
|
|
Long-term
Debt |
|
Total
|
||||||||||||||
Three Months Ended March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance, beginning of period
|
|
$
|
808,557
|
|
|
$
|
5,979
|
|
|
$
|
60,808
|
|
|
$
|
2,914,145
|
|
|
$
|
11,529,384
|
|
|
$
|
(2,757,688
|
)
|
|
$
|
12,561,185
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Included in earnings
|
|
35,184
|
|
|
(358
|
)
|
|
(9,375
|
)
|
|
(69,026
|
)
|
|
(202,588
|
)
|
|
159,985
|
|
|
(86,178
|
)
|
|||||||
Included in other comprehensive income
|
|
(52,508
|
)
|
|
—
|
|
|
—
|
|
|
110,644
|
|
|
423,892
|
|
|
(103,877
|
)
|
|
378,151
|
|
|||||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Settlements
|
|
(713,603
|
)
|
|
—
|
|
|
(1,525
|
)
|
|
—
|
|
|
(192,357
|
)
|
|
5,064
|
|
|
(902,421
|
)
|
|||||||
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Balance, end of period
|
|
$
|
77,630
|
|
|
$
|
5,621
|
|
|
$
|
49,908
|
|
|
$
|
2,955,763
|
|
|
$
|
11,558,331
|
|
|
$
|
(2,696,516
|
)
|
|
$
|
11,950,737
|
|
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
|
|
$
|
—
|
|
|
$
|
(358
|
)
|
|
$
|
(9,481
|
)
|
|
$
|
(69,026
|
)
|
|
$
|
(202,588
|
)
|
|
$
|
159,985
|
|
|
$
|
(121,468
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Three Months Ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
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
|
|
9,819
|
|
|
(343
|
)
|
|
(2,817
|
)
|
|
(5,195
|
)
|
|
346,192
|
|
|
(94,407
|
)
|
|
253,249
|
|
|||||||
Included in other comprehensive income
|
|
6,285
|
|
|
—
|
|
|
—
|
|
|
46,348
|
|
|
183,549
|
|
|
(46,257
|
)
|
|
189,925
|
|
|||||||
Purchases
|
|
9,851
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,851
|
|
|||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Sales
|
|
(79,319
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(79,319
|
)
|
|||||||
Settlements
|
|
(9,793
|
)
|
|
—
|
|
|
511
|
|
|
—
|
|
|
(173,399
|
)
|
|
6,242
|
|
|
(176,439
|
)
|
|||||||
Transfers into Level 3
|
|
22,078
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,078
|
|
|||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Balance, end of period
|
|
$
|
721,624
|
|
|
$
|
7,039
|
|
|
$
|
(102,588
|
)
|
|
$
|
2,663,719
|
|
|
$
|
11,015,305
|
|
|
$
|
(2,716,642
|
)
|
|
$
|
11,588,457
|
|
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
|
|
$
|
—
|
|
|
$
|
(343
|
)
|
|
$
|
(3,017
|
)
|
|
$
|
(5,195
|
)
|
|
$
|
346,192
|
|
|
$
|
(94,407
|
)
|
|
$
|
243,230
|
|
|
Level 3 - Investments by Class:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
Three Months Ended March 31, 2018
|
|
Three Months Ended March 31, 2017
|
||||||||||||||||||||
|
|
Other Asset
Backed Securities |
|
Non-Agency
RMBS
|
|
Total
Investments |
|
Other Asset
Backed Securities |
|
Non-Agency
RMBS
|
|
Total
Investments |
||||||||||||
Balance, beginning of period
|
|
$
|
72,540
|
|
|
$
|
736,017
|
|
|
$
|
808,557
|
|
|
$
|
65,990
|
|
|
$
|
696,713
|
|
|
$
|
762,703
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Included in earnings
|
|
457
|
|
|
34,727
|
|
|
35,184
|
|
|
353
|
|
|
9,466
|
|
|
9,819
|
|
||||||
Included in other comprehensive income
|
|
(370
|
)
|
|
(52,138
|
)
|
|
(52,508
|
)
|
|
(279
|
)
|
|
6,564
|
|
|
6,285
|
|
||||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
9,851
|
|
|
9,851
|
|
||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(79,319
|
)
|
|
(79,319
|
)
|
||||||
Settlements
|
|
(306
|
)
|
|
(713,297
|
)
|
|
(713,603
|
)
|
|
(257
|
)
|
|
(9,536
|
)
|
|
(9,793
|
)
|
||||||
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
22,078
|
|
|
22,078
|
|
||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Balance, end of period
|
|
$
|
72,321
|
|
|
$
|
5,309
|
|
|
$
|
77,630
|
|
|
$
|
65,807
|
|
|
$
|
655,817
|
|
|
$
|
721,624
|
|
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 3 - Derivatives by Class:
|
|
|
|
|
||||||||||||||||||||
|
|
Three Months Ended March 31, 2018
|
|
Three Months Ended March 31, 2017
|
||||||||||||||||||||
|
|
Interest
Rate Swaps |
|
Credit
Derivatives |
|
Total
Derivatives |
|
Interest
Rate Swaps |
|
Credit
Derivatives |
|
Total
Derivatives |
||||||||||||
Balance, beginning of period
|
|
$
|
61,374
|
|
|
$
|
(566
|
)
|
|
$
|
60,808
|
|
|
$
|
(84,933
|
)
|
|
$
|
(15,349
|
)
|
|
$
|
(100,282
|
)
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Included in earnings
|
|
(9,029
|
)
|
|
(346
|
)
|
|
(9,375
|
)
|
|
(3,869
|
)
|
|
1,052
|
|
|
(2,817
|
)
|
||||||
Included in other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Settlements
|
|
(1,419
|
)
|
|
(106
|
)
|
|
(1,525
|
)
|
|
710
|
|
|
(199
|
)
|
|
511
|
|
||||||
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Balance, end of period
|
|
$
|
50,926
|
|
|
$
|
(1,018
|
)
|
|
$
|
49,908
|
|
|
$
|
(88,092
|
)
|
|
$
|
(14,496
|
)
|
|
$
|
(102,588
|
)
|
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
|
|
$
|
(9,029
|
)
|
|
$
|
(452
|
)
|
|
$
|
(9,481
|
)
|
|
$
|
(3,869
|
)
|
|
$
|
852
|
|
|
$
|
(3,017
|
)
|
|
|
|
Net
Investment Income |
|
Realized
Gains or (Losses) and Other Settlements on Credit Derivative Contracts |
|
Unrealized
Gains or (Losses) on Credit Derivative Contracts |
|
Derivative
Products Revenues (Interest
Rate Swaps)
|
|
Income
(Loss) on Variable Interest Entities |
|
Other
Income or (Loss) |
||||||||||||
Three Months Ended March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total gains or losses included in earnings for the period
|
|
$
|
35,184
|
|
|
$
|
—
|
|
|
$
|
(452
|
)
|
|
$
|
(9,029
|
)
|
|
$
|
(111,629
|
)
|
|
$
|
(358
|
)
|
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date
|
|
—
|
|
|
—
|
|
|
(452
|
)
|
|
(9,029
|
)
|
|
(111,629
|
)
|
|
(358
|
)
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Three Months Ended March 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Total gains or losses included in earnings for the period
|
|
$
|
9,819
|
|
|
$
|
199
|
|
|
$
|
853
|
|
|
$
|
(3,869
|
)
|
|
$
|
246,590
|
|
|
$
|
(343
|
)
|
Changes in unrealized gains or losses relating to the assets and liabilities still held at the reporting date
|
|
—
|
|
|
—
|
|
|
852
|
|
|
(3,869
|
)
|
|
246,590
|
|
|
(343
|
)
|
|
|
Amortized
Cost |
|
Gross
Unrealized Gains |
|
Gross
Unrealized Losses |
|
Estimated
Fair Value |
|
Non-credit
Other-than temporary Impairments (1) |
||||||||||
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
853,001
|
|
|
$
|
14,307
|
|
|
$
|
11,921
|
|
|
$
|
855,387
|
|
|
$
|
109
|
|
Corporate obligations
(2)
|
|
1,445,586
|
|
|
12,216
|
|
|
18,809
|
|
|
1,438,993
|
|
|
—
|
|
|||||
Foreign obligations
|
|
26,425
|
|
|
238
|
|
|
268
|
|
|
26,395
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
90,281
|
|
|
119
|
|
|
3,139
|
|
|
87,261
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
726,998
|
|
|
101,218
|
|
|
4,920
|
|
|
823,296
|
|
|
4,854
|
|
|||||
Collateralized debt obligations
|
|
50,754
|
|
|
204
|
|
|
—
|
|
|
50,958
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
520,863
|
|
|
69,678
|
|
|
893
|
|
|
589,648
|
|
|
—
|
|
|||||
|
|
3,713,908
|
|
|
197,980
|
|
|
39,950
|
|
|
3,871,938
|
|
|
4,963
|
|
|||||
Short-term
|
|
321,210
|
|
|
4
|
|
|
95
|
|
|
321,119
|
|
|
—
|
|
|||||
|
|
4,035,118
|
|
|
197,984
|
|
|
40,045
|
|
|
4,193,057
|
|
|
4,963
|
|
|||||
Fixed income securities pledged as collateral:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. government obligations
|
|
84,240
|
|
|
—
|
|
|
—
|
|
|
84,240
|
|
|
—
|
|
|||||
Total collateralized investments
|
|
84,240
|
|
|
—
|
|
|
—
|
|
|
84,240
|
|
|
—
|
|
|||||
Total available-for-sale investments
|
|
$
|
4,119,358
|
|
|
$
|
197,984
|
|
|
$
|
40,045
|
|
|
$
|
4,277,297
|
|
|
$
|
4,963
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
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
|
|
(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
March 31, 2018 and December 31, 2017
.
|
(2)
|
Includes Ambac's holdings of the
secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions.
|
|
|
Amortized
Cost |
|
Estimated
Fair Value |
||||
Due in one year or less
|
|
$
|
461,954
|
|
|
$
|
461,683
|
|
Due after one year through five years
|
|
1,237,724
|
|
|
1,239,764
|
|
||
Due after five years through ten years
|
|
287,768
|
|
|
279,803
|
|
||
Due after ten years
|
|
833,297
|
|
|
832,145
|
|
||
|
|
2,820,743
|
|
|
2,813,395
|
|
||
Residential mortgage-backed securities
|
|
726,998
|
|
|
823,296
|
|
||
Collateralized debt obligations
|
|
50,754
|
|
|
50,958
|
|
||
Other asset-backed securities
|
|
520,863
|
|
|
589,648
|
|
||
Total
|
|
$
|
4,119,358
|
|
|
$
|
4,277,297
|
|
|
|
Less Than 12 Months
|
|
12 Months or More
|
|
Total
|
||||||||||||||||||
|
|
Fair Value
|
|
Gross
Unrealized Loss |
|
Fair Value
|
|
Gross
Unrealized Loss |
|
Fair Value
|
|
Gross
Unrealized Loss |
||||||||||||
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Municipal obligations
|
|
$
|
495,224
|
|
|
$
|
10,775
|
|
|
$
|
30,590
|
|
|
$
|
1,146
|
|
|
$
|
525,814
|
|
|
$
|
11,921
|
|
Corporate obligations
|
|
457,056
|
|
|
13,566
|
|
|
106,696
|
|
|
5,243
|
|
|
563,752
|
|
|
18,809
|
|
||||||
Foreign obligations
|
|
13,806
|
|
|
217
|
|
|
1,736
|
|
|
51
|
|
|
15,542
|
|
|
268
|
|
||||||
U.S. government obligations
|
|
77,446
|
|
|
3,067
|
|
|
3,423
|
|
|
72
|
|
|
80,869
|
|
|
3,139
|
|
||||||
Residential mortgage-backed securities
|
|
13,321
|
|
|
531
|
|
|
101,462
|
|
|
4,389
|
|
|
114,783
|
|
|
4,920
|
|
||||||
Other asset-backed securities
|
|
34,288
|
|
|
123
|
|
|
77,184
|
|
|
770
|
|
|
111,472
|
|
|
893
|
|
||||||
|
|
1,091,141
|
|
|
28,279
|
|
|
321,091
|
|
|
11,671
|
|
|
1,412,232
|
|
|
39,950
|
|
||||||
Short-term
|
|
120,661
|
|
|
95
|
|
|
—
|
|
|
—
|
|
|
120,661
|
|
|
95
|
|
||||||
Total temporarily impaired securities
|
|
$
|
1,211,802
|
|
|
$
|
28,374
|
|
|
$
|
321,091
|
|
|
$
|
11,671
|
|
|
$
|
1,532,893
|
|
|
$
|
40,045
|
|
|
|
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
|
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2018
|
|
2017
|
||||
Gross realized gains on securities
|
|
$
|
11,054
|
|
|
$
|
2,659
|
|
Gross realized losses on securities
|
|
(1,388
|
)
|
|
(9,471
|
)
|
||
Net foreign exchange (losses) gains
|
|
(4,804
|
)
|
|
1,916
|
|
||
Net realized gains (losses)
|
|
$
|
4,862
|
|
|
$
|
(4,896
|
)
|
Net other-than-temporary impairments
(1)
|
|
$
|
(299
|
)
|
|
$
|
(3,942
|
)
|
(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 Ambac will be required to sell before recovery of the amortized cost basis.
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2018
|
|
2017
|
||||
Balance, beginning of period
|
|
$
|
67,085
|
|
|
$
|
52,070
|
|
Additions for credit impairments recognized on:
|
|
|
|
|
||||
Securities not previously impaired
|
|
226
|
|
|
307
|
|
||
Securities previously impaired
|
|
64
|
|
|
1,985
|
|
||
Reductions for credit impairments previously recognized on:
|
|
|
|
|
||||
Securities that matured or were sold during the period
|
|
(23,742
|
)
|
|
—
|
|
||
Balance, end of period
|
|
$
|
43,633
|
|
|
$
|
54,362
|
|
|
|
Municipal
Obligations |
|
Corporate
Obligations (3) |
|
Mortgage
and Asset- backed Securities |
|
Total
|
|
Weighted
Average Underlying Rating (1) |
||||||||
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Ambac Assurance Corporation
(2)
|
|
$
|
785,791
|
|
|
$
|
813,720
|
|
|
$
|
1,283,502
|
|
|
$
|
2,883,013
|
|
|
CC
|
National Public Finance Guarantee Corporation
|
|
18,913
|
|
|
—
|
|
|
—
|
|
|
18,913
|
|
|
BBB-
|
||||
Assured Guaranty Municipal Corporation
|
|
6,000
|
|
|
—
|
|
|
—
|
|
|
6,000
|
|
|
BBB+
|
||||
Total
|
|
$
|
810,704
|
|
|
$
|
813,720
|
|
|
$
|
1,283,502
|
|
|
$
|
2,907,926
|
|
|
CC
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
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
|
(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
$169,943
and
$170,280
at
March 31, 2018 and December 31, 2017
, respectively, insured by Ambac UK.
|
(3)
|
2018 includes Ambac's holdings of the secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions. These secured notes are insured by Ambac Assurance.
|
|
|
Fair Value
|
|
|
|
|
||||||
Class of Funds
|
|
March 31,
2018 |
|
December 31,
2017 |
|
Redemption Frequency
|
|
Redemption Notice Period
|
||||
Real estate properties
(1)
|
|
$
|
34,752
|
|
|
$
|
33,154
|
|
|
quarterly
|
|
10 business days
|
Diversified hedge fund strategies
(2)
|
|
56,394
|
|
|
53,054
|
|
|
semi-monthly
|
|
15 - 30 days
|
||
Interest rate products
(3) (7)
|
|
142,856
|
|
|
136,603
|
|
|
daily, weekly or monthly
|
|
0 - 30 days
|
||
Illiquid investments
(4)
|
|
71,366
|
|
|
67,787
|
|
|
quarterly
|
|
180 days
|
||
Insurance-linked investments
(5)
|
|
23,637
|
|
|
22,666
|
|
|
quarterly
|
|
90-120 days
|
||
Equity market investments
(6) (7)
|
|
54,682
|
|
|
53,675
|
|
|
daily
|
|
0 days
|
||
Total equity investments in pooled funds
|
|
$
|
383,687
|
|
|
$
|
366,939
|
|
|
|
|
|
(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
$2,853
at
March 31, 2018
and
$2,823
at
December 31, 2017
and equity market investments include
$54,682
at
March 31, 2018
and
$53,675
at
December 31, 2017
that have readily determinable fair values priced through pricing vendors.
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2018
|
|
2017
|
||||
Fixed income securities
|
|
$
|
109,351
|
|
|
$
|
74,069
|
|
Short-term investments
|
|
2,840
|
|
|
989
|
|
||
Loans
|
|
187
|
|
|
89
|
|
||
Investment expense
|
|
(1,827
|
)
|
|
(1,997
|
)
|
||
Securities available-for-sale and short-term
|
|
110,551
|
|
|
73,150
|
|
||
Other investments
|
|
(311
|
)
|
|
8,409
|
|
||
Total net investment income
|
|
$
|
110,240
|
|
|
$
|
81,559
|
|
|
|
Three Months Ended March 31,
|
||||||
|
|
2018
|
|
2017
|
||||
Net gains (losses) recognized during the period on trading securities
|
|
$
|
(1,579
|
)
|
|
$
|
7,211
|
|
Less: net gains (losses) recognized during the reporting period on trading securities sold during the period
|
|
1,933
|
|
|
1,283
|
|
||
Unrealized gains (losses) recognized during the reporting period on trading securities still held at the reporting date
|
|
$
|
(3,512
|
)
|
|
$
|
5,928
|
|
|
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
|
||||||||||
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
60,198
|
|
|
$
|
2
|
|
|
$
|
60,196
|
|
|
$
|
—
|
|
|
$
|
60,196
|
|
Total non-VIE derivative assets
|
$
|
60,198
|
|
|
$
|
2
|
|
|
$
|
60,196
|
|
|
$
|
—
|
|
|
$
|
60,196
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
$
|
1,018
|
|
|
$
|
—
|
|
|
$
|
1,018
|
|
|
$
|
—
|
|
|
$
|
1,018
|
|
Interest rate swaps
|
70,568
|
|
|
2
|
|
|
70,566
|
|
|
69,545
|
|
|
1,021
|
|
|||||
Total non-VIE derivative liabilities
|
$
|
71,586
|
|
|
$
|
2
|
|
|
$
|
71,584
|
|
|
$
|
69,545
|
|
|
$
|
2,039
|
|
Variable Interest Entities Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps
|
$
|
46,260
|
|
|
$
|
—
|
|
|
$
|
46,260
|
|
|
$
|
—
|
|
|
$
|
46,260
|
|
Total VIE derivative assets
|
$
|
46,260
|
|
|
$
|
—
|
|
|
$
|
46,260
|
|
|
$
|
—
|
|
|
$
|
46,260
|
|
Variable Interest Entities Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
2,155,456
|
|
|
$
|
—
|
|
|
$
|
2,155,456
|
|
|
$
|
—
|
|
|
$
|
2,155,456
|
|
Total VIE derivative liabilities
|
$
|
2,155,456
|
|
|
$
|
—
|
|
|
$
|
2,155,456
|
|
|
$
|
—
|
|
|
$
|
2,155,456
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
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
|
|
|
Location of Gain or (Loss)
Recognized in Consolidated
Statements of Total
Comprehensive Income (Loss)
|
|
Amount of Gain or (Loss)
Recognized in
Consolidated Statement of Total
Comprehensive Income (Loss)
|
||||||||
|
|
Three Months Ended March 31,
|
|||||||||
|
|
2018
|
|
2017
|
|||||||
Non-VIEs:
|
|
|
|
|
|
|
|
||||
Credit derivatives
|
Net change in fair value of credit derivatives
|
|
$
|
(346
|
)
|
|
$
|
1,052
|
|
||
Non-VIE derivatives:
|
|
|
|
|
|
|
|
||||
Interest rate swaps
|
Net gains (losses) on interest rate derivatives
|
|
4,543
|
|
|
108
|
|
||||
Futures contracts
|
Net gains (losses) on interest rate derivatives
|
|
20,994
|
|
|
(1,622
|
)
|
||||
Total Non-VIE derivatives
|
|
|
|
|
25,537
|
|
|
(1,514
|
)
|
||
Variable Interest Entities:
|
|
|
|
|
|
|
|
||||
Currency swaps
|
Income (loss) on variable interest entities
|
|
(8,617
|
)
|
|
(4,948
|
)
|
||||
Interest rate swaps
|
Income (loss) on variable interest entities
|
|
49,809
|
|
|
14,496
|
|
||||
Total Variable Interest Entities
|
|
|
41,192
|
|
|
9,548
|
|
||||
Total derivative contracts
|
|
|
$
|
66,383
|
|
|
$
|
9,086
|
|
Ambac Rating
|
|
March 31,
2018 |
|
December 31, 2017
|
||||
AAA
|
|
$
|
—
|
|
|
$
|
—
|
|
AA
|
|
176,631
|
|
|
175,765
|
|
||
A
|
|
—
|
|
|
—
|
|
||
BBB
(1)
|
|
154,025
|
|
|
150,125
|
|
||
Below investment grade
(2)
|
|
—
|
|
|
—
|
|
||
Total
|
|
$
|
330,656
|
|
|
$
|
325,890
|
|
(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
|
||||||
Type of derivative
|
|
March 31,
2018 |
|
December 31,
2017 |
||||
Interest rate swaps—receive-fixed/pay-variable
|
|
$
|
376,414
|
|
|
$
|
379,497
|
|
Interest rate swaps—pay-fixed/receive-variable
|
|
1,439,932
|
|
|
1,428,264
|
|
||
US Treasury futures contracts—short
|
|
1,805,000
|
|
|
1,655,000
|
|
|
|
Notional
|
||||||
Type of VIE derivative
|
|
March 31,
2018 |
|
December 31,
2017 |
||||
Interest rate swaps—receive-fixed/pay-variable
|
|
$
|
1,540,122
|
|
|
$
|
1,483,491
|
|
Interest rate swaps—pay-fixed/receive-variable
|
|
2,561,654
|
|
|
2,479,244
|
|
||
Currency swaps
|
|
402,231
|
|
|
394,541
|
|
||
Credit derivatives
|
|
11,865
|
|
|
12,100
|
|
|
|
March 31,
2018 |
|
December 31,
2017 |
||||
Ambac Assurance:
|
|
|
|
|
||||
5.1% surplus notes due 2020
|
|
$
|
260,993
|
|
|
$
|
668,667
|
|
5.1% junior surplus notes due 2020
|
|
249,226
|
|
|
249,036
|
|
||
Ambac Note
|
|
2,148,369
|
|
|
—
|
|
||
Tier 2 Notes
|
|
233,948
|
|
|
—
|
|
||
Secured borrowing
|
|
65,196
|
|
|
73,993
|
|
||
Ambac Assurance long-term debt
|
|
$
|
2,957,732
|
|
|
$
|
991,696
|
|
|
|
|
|
|
||||
Variable Interest Entities long-term debt
|
|
$
|
12,270,124
|
|
|
$
|
12,160,544
|
|
•
|
Par value at
March 31, 2018 and December 31, 2017
includes
$19,315
and
$20,237
, 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) are reduced periodically as rent payments under the replacement lease (beginning in January 2016) are made by Ambac Assurance. Par value of these junior surplus notes was reduced by
$922
and
$977
during the
three months ended March 31, 2018
and the
three months ended March 31, 2017
, respectively, as rent payments were made by Ambac Assurance. These junior surplus notes were recorded at their fair value at the date 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
March 31, 2018 and December 31, 2017
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
|
2013
|
United Kingdom
|
2014
|
Italy
|
2013
|
|
March 31,
2018 |
|
December 31,
2017 |
||||
Deferred tax liabilities:
|
|
|
|
||||
Insurance intangible
|
$
|
174,938
|
|
|
$
|
177,864
|
|
Debentures
|
53,274
|
|
|
28,387
|
|
||
Unearned premiums and credit fees
|
50,569
|
|
|
51,485
|
|
||
Variable interest entities
|
23,221
|
|
|
22,817
|
|
||
Investments
|
19,003
|
|
|
28,798
|
|
||
Other
|
11,722
|
|
|
9,402
|
|
||
Total deferred tax liabilities
|
332,727
|
|
|
318,753
|
|
||
Deferred tax assets:
|
|
|
|
||||
Net operating loss and capital carryforward
|
688,693
|
|
|
775,917
|
|
||
Loss reserves
|
298,888
|
|
|
264,624
|
|
||
Compensation
|
6,819
|
|
|
5,585
|
|
||
Other
|
1,819
|
|
|
2,140
|
|
||
Subtotal deferred tax assets
|
996,219
|
|
|
1,048,266
|
|
||
Valuation allowance
|
698,296
|
|
|
763,172
|
|
||
Total deferred tax assets
|
297,923
|
|
|
285,094
|
|
||
Net deferred tax (liability)
|
$
|
(34,804
|
)
|
|
$
|
(33,659
|
)
|
|
Three Months Ended March 31,
|
||||||
|
2018
|
|
2017
|
||||
Current taxes
|
|
|
|
||||
U. S. federal
|
$
|
—
|
|
|
$
|
—
|
|
U.S. state and local
|
1,037
|
|
|
320
|
|
||
Foreign
|
(39
|
)
|
|
19,261
|
|
||
Current taxes
|
998
|
|
|
19,581
|
|
||
Deferred taxes
|
|
|
|
||||
Foreign
|
1,607
|
|
|
—
|
|
||
Provision for income taxes
|
$
|
2,605
|
|
|
$
|
19,581
|
|
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%
|
•
|
Meade Communities LLC v. Ambac Assurance Corporation (Circuit Court, Anne Arundel County, Maryland, Case No. C-02-CV-15-003745). 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 Assurance'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 Assurance's Motion to Alter or Amend Judgment. On March 14, 2018, Meade filed its opposition brief. The motion has not yet been decided.
|
•
|
Monterey Bay Military Housing, LLC, et al. v. Ambac Assurance Corporation, et al. (United States District Court, Northern District of California, San Jose Division, Case No. 17-cv-04992-BLF, filed August 28, 2017). Plaintiffs filed an amended complaint on October 27, 2017. Ambac Assurance and the other defendants filed motions to dismiss the amended complaint on November 13, 2017, which Plaintiffs opposed on December 15, 2017. The motions are fully briefed and the court heard oral argument on April 12, 2018. No decision has been issued.
|
•
|
Ambac Assurance Corporation v. Fort Bliss/White Sands Missile Range Housing LP (District Court, El Paso County, Texas, Cause No. 2016DCV0094)
. 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. On March 13, 2018, the Wisconsin Court of Appeals entered an order that, among other things, stayed the Rehabilitation Court's February 7, 2018 injunction. On April 27, 2018, the court held argument on the cross-motions for summary judgment and took the matter under advisement, with no ruling issued from the bench.
|
•
|
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). 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. 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
|
•
|
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). On June 23, 2016, the Wisconsin Court of Appeals reversed the trial court’s prior dismissal of the complaint, and on October 11, 2016, the Wisconsin Supreme Court granted Countrywide’s petition for review of the June 23 decision by the Wisconsin Court of Appeals. The Wisconsin Supreme Court appeal was argued on February 28, 2017. On June 30, 2017, the Wisconsin Supreme Court reversed the decision of the Wisconsin Court of Appeals and remanded the case to the Wisconsin Court of Appeals for further proceedings. On December 14, 2017, the Wisconsin Court of Appeals affirmed the trial court’s July 2, 2015 decision dismissing the case for lack of personal jurisdiction. On January 16, 2018, Ambac Assurance filed a petition with the Supreme Court of Wisconsin for review of the December 14, 2017 decision. On January 30, 2018, Countrywide opposed the petition. On March 13, 2018, the Wisconsin Supreme Court denied Ambac Assurance’s petition for review, ending the Wisconsin Action. In the 2015 New York Action, on September 20, 2016, the New York Court granted Ambac Assurance’s motion to stay, holding Countrywide’s motion to dismiss the complaint in abeyance pending resolution of the Wisconsin Action. On March 30, 2018, the court vacated its stay of the 2015 New York Action, and the parties submitted supplemental letter briefs on April 11, 2018 addressing newly-issued authority relevant to Countrywide’s pending motion to dismiss, which was restored to the calendar.
|
•
|
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-00446 (SHS), filed January 20, 2017). On December 6, 2017, the court granted U.S. Bank’s motion for reconsideration and granted U.S. Bank’s motion to dismiss, and on January 18, 2018, the court issued an opinion memorializing the reasons for its decision. Ambac did not appeal that decision, and judgment was entered on March 5, 2018. On March 6, 2017, U.S. Bank filed a trust instruction proceeding in Minnesota state court concerning the proposed settlement, which is captioned, In the matter of HarborView Mortgage Loan Trust 2005-10, No. 27-TR-CV-17-32 (the “Minnesota Action”). On April 5, 2017, Ambac Assurance filed a motion to dismiss the Minnesota Action. On June 12, 2017, U.S. Bank filed an amended petition in the Minnesota Action, and on July 7, 2017 Ambac Assurance filed a renewed motion to dismiss, which U.S. Bank opposed. On November 13, 2017, the court denied the motion to dismiss the proceeding. On February 7, 2018, Ambac Assurance appealed this dismissal and U.S Bank opposed the appeal. Oral argument is scheduled for June 7, 2018. Additionally, certain certificateholders have objected or otherwise responded to the petition filed by U.S. Bank.
|
•
|
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). 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. On March 12, 2018, Ambac Assurance filed an Amended Complaint removing the Segregated Account as a plaintiff. As a result, defendant agreed to withdraw certain arguments in support of its motion to dismiss. The remainder of the motion remains pending.
|
($ in billions)
|
March 31,
2018 |
|
December 31,
2017 |
|
$ Variance
|
|
% Variance
|
|||||||
Total
|
$
|
59.6
|
|
|
$
|
62.7
|
|
|
$
|
(3.1
|
)
|
|
(5
|
)%
|
ACC
|
12.6
|
|
|
14.1
|
|
|
(1.5
|
)
|
|
(10
|
)%
|
•
|
Corporate securities
and shor
t-term securities of
$274.1 million
, (includi
ng $126.4 million of the secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions)
|
•
|
Ambac Assurance surplus notes with a fair value of
$92.7 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 with a current value of
$36.2 million
at
March 31, 2018
.
Refer to Note 3. Special Purpose Entities, Including Variable Interest Entities to the Consolidated Financial Statements included in Part II, Item 8 in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017
for more information on the Corolla Trust
.
|
(1)
|
A portion of Ambac UK's, and to a lesser extent Ambac Assurance's, assets and liabilities are denominated in currencies other than its functional currency and accordingly, we recognized net foreign currency transaction gains/(losses) as a result of changes to foreign currency rates through our Consolidated Statement of Total Comprehensive Income (Loss). Refer to
Note 2. Basis of Presentation and Significant Accounting Policies
to the Consolidated Financial Statements
included in Part I, Item 1 in this Form 10-Q
for further details on transaction gains and losses.
|
($ in millions)
|
March 31,
2018 |
|
December 31,
2017 |
||||
Public Finance
(1) (2)
|
$
|
29,924
|
|
|
$
|
32,088
|
|
Structured Finance
|
12,662
|
|
|
13,816
|
|
||
International Finance
|
16,989
|
|
|
16,812
|
|
||
Total net par outstanding
|
$
|
59,575
|
|
|
$
|
62,716
|
|
(1)
|
Includes
$5,813
and
$5,829
of Military Housing net par outstanding at
March 31, 2018 and December 31, 2017
, respectively.
|
(2)
|
Includes
$1,968
and
$1,968
of Puerto Rico net par outstanding at
March 31, 2018 and December 31, 2017
, respectively. Components of Puerto Rico net par outstanding includes capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds.
|
•
|
Reductions in public finance net par outstanding included
$1,766 million
from calls of insured exposures,
$2 million
from refundings and pre-refundings of insured exposures and
$396 million
from scheduled paydown activity.
|
•
|
Reductions in structured finance net par primarily were due to RMBS paydowns of
$570 million
and i
nvestor-owned utilities calls and paydowns of
$493 million.
|
•
|
Increases in international finance were primarily due to the impact of foreign exchange rates of
$537 million
primarily related to changes in the British Pound, partially offset by policy runoff including prepayments of investor-owned utility and mortgage-backed securities.
|
Currency
(Amounts in millions)
|
|
Net Par Amount
Outstanding in
Base Currency
|
|
Net Par Amount
Outstanding in
U.S. Dollars
|
||||
U.S. Dollars
|
|
$
|
43,467
|
|
|
$
|
43,467
|
|
British Pounds
|
|
£
|
9,573
|
|
|
13,434
|
|
|
Euros
|
|
€
|
1,684
|
|
|
2,075
|
|
|
Australian Dollars
|
|
A$
|
779
|
|
|
599
|
|
|
Total
|
|
|
|
$
|
59,575
|
|
($ in millions)
|
|
Ambac
Ratings
(1)
|
|
Net Par
Outstanding
|
|
% of Total
Net Par
Outstanding
|
|||
New Jersey Transportation Trust Fund Authority - Transportation System
|
|
BBB+
|
|
$
|
1,642
|
|
|
2.8
|
%
|
Puerto Rico Sales Tax Financing Corporation - Senior Sales Tax Revenue (COFINA)
|
|
BIG
|
|
805
|
|
|
1.4
|
%
|
|
Massachusetts Commonwealth - GO
|
|
AA
|
|
802
|
|
|
1.3
|
%
|
|
Mets Queens Baseball Stadium Project, NY, Lease Revenue
|
|
BBB
|
|
557
|
|
|
0.9
|
%
|
|
Hickam Community Housing LLC
|
|
BBB
|
|
472
|
|
|
0.8
|
%
|
|
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-
|
|
428
|
|
|
0.7
|
%
|
|
New Jersey Economic Development Authority - School Facilities Construction
|
|
BBB+
|
|
400
|
|
|
0.7
|
%
|
|
Chicago, IL - GO
|
|
BBB-
|
|
360
|
|
|
0.6
|
%
|
|
Total
|
|
|
|
$
|
6,337
|
|
|
10.6
|
%
|
(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.
|
($ in millions)
|
|
Bond Type
|
|
Ambac
Rating
(1)
|
|
Net Par
Outstanding
|
|
% of Total
Net Par
Outstanding
|
|||
Ballantyne Re Plc
(2)
|
|
Structured Insurance
|
|
BIG
|
|
$
|
900
|
|
|
1.5
|
%
|
Progress Energy Carolinas, Inc.
|
|
Investor Owned Utility
|
|
A-
|
|
558
|
|
|
0.9
|
%
|
|
Wachovia Asset Securitization Issuance II, LLC 2007-HE2
|
|
Mortgage Backed Securities
|
|
BBB
|
|
526
|
|
|
0.9
|
%
|
|
Timberlake Financial, LLC
|
|
Structured Insurance
|
|
BBB
|
|
511
|
|
|
0.9
|
%
|
|
Wachovia Asset Securitization Issuance II, LLC 2007-HE1
|
|
Mortgage Backed Securities
|
|
BBB
|
|
367
|
|
|
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
|
|
259
|
|
|
0.4
|
%
|
|
Niagara Mohawk Power Corporation
|
|
Investor Owned Utility
|
|
A
|
|
257
|
|
|
0.4
|
%
|
|
The National Collegiate Student Loan Trust 2007-4
|
|
Student Loan
|
|
BIG
|
|
229
|
|
|
0.4
|
%
|
|
Impac CMB Trust Series 2005-7
|
|
Mortgage Backed Securities
|
|
BIG
|
|
228
|
|
|
0.4
|
%
|
|
Total
|
|
|
|
|
|
$
|
4,182
|
|
|
7.0
|
%
|
(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
|
(2)
|
Insurance policy issued by Ambac UK.
|
($ 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+
|
|
$
|
1,501
|
|
|
2.5
|
%
|
National Grid Electricity Transmission
|
|
UK-Utility
|
|
A-
|
|
1,181
|
|
|
2.0
|
%
|
|
Aspire Defence Finance plc
|
|
UK-Infrastructure
|
|
BBB+
|
|
953
|
|
|
1.6
|
%
|
|
Capital Hospitals plc
(2)
|
|
UK-Infrastructure
|
|
A-
|
|
950
|
|
|
1.6
|
%
|
|
Posillipo Finance II S.r.l
|
|
Italy-Sub-Sovereign
|
|
BBB-
|
|
838
|
|
|
1.4
|
%
|
|
Anglian Water
|
|
UK-Utility
|
|
A-
|
|
830
|
|
|
1.4
|
%
|
|
Ostregion Investmentgesellschaft NR 1 SA
(2)
|
|
Austria-Infrastructure
|
|
BIG
|
|
790
|
|
|
1.3
|
%
|
|
Telereal Securitisation plc
|
|
UK-Asset Securitizations
|
|
AA
|
|
782
|
|
|
1.3
|
%
|
|
National Grid Gas
|
|
UK-Utility
|
|
A-
|
|
766
|
|
|
1.3
|
%
|
|
RMPA Services plc
|
|
UK-Infrastructure
|
|
BBB+
|
|
636
|
|
|
1.1
|
%
|
|
Total
|
|
|
|
|
|
$
|
9,227
|
|
|
15.5
|
%
|
(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)
|
Ambac Assurance has issued an insurance policy for this transaction that will only pay in the event that Ambac UK does not pay under its insurance policy.
|
(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
|
||||||
Summary of Below Investment
Grade Exposure ($ in millions)
|
|
March 31,
2018 |
|
December 31,
2017 |
||||
Public Finance:
|
|
|
|
|
||||
Lease and tax-backed
(1)
|
|
$
|
2,138
|
|
|
$
|
2,144
|
|
General obligation
(1)
|
|
488
|
|
|
491
|
|
||
Transportation
|
|
378
|
|
|
397
|
|
||
Housing
(2)
|
|
316
|
|
|
317
|
|
||
Health care
|
|
23
|
|
|
24
|
|
||
Other
|
|
187
|
|
|
189
|
|
||
Total Public Finance
|
|
3,530
|
|
|
3,562
|
|
||
Structured Finance:
|
|
|
|
|
||||
Residential mortgage-backed and home equity—first lien
|
|
3,750
|
|
|
3,947
|
|
||
Residential mortgage-backed and home equity—second lien
|
|
1,561
|
|
|
2,803
|
|
||
Student loans
|
|
902
|
|
|
922
|
|
||
Structured Insurance
|
|
900
|
|
|
900
|
|
||
Mortgage-backed and home equity—other
|
|
161
|
|
|
166
|
|
||
Other
|
|
—
|
|
|
9
|
|
||
Total Structured Finance
|
|
7,274
|
|
|
8,747
|
|
||
International Finance:
|
|
|
|
|
||||
Other
|
|
1,194
|
|
|
1,200
|
|
||
Total International Finance
|
|
1,194
|
|
|
1,200
|
|
||
Total
|
|
$
|
11,998
|
|
|
$
|
13,509
|
|
(1)
|
Lease and tax-backed revenue includes
$1,802
of Puerto Rico net par at
March 31, 2018 and December 31, 2017
. General obligation includes
$166
of Puerto Rico net par at
March 31, 2018 and December 31, 2017
. Components of Puerto Rico net par outstanding includes capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds.
|
(2)
|
Relates to military housing net par.
|
|
|
Three Months Ended March 31,
|
||||||
($ in millions)
|
|
2018
|
|
2017
|
||||
Revenues:
|
|
|
|
|
||||
Net premiums earned
|
|
$
|
30.9
|
|
|
$
|
47.6
|
|
Net investment income
|
|
110.2
|
|
|
81.6
|
|
||
Net other-than-temporary impairment losses
|
|
(0.3
|
)
|
|
(3.9
|
)
|
||
Net realized investment gains (losses)
|
|
4.9
|
|
|
(4.9
|
)
|
||
Change in fair value of credit derivatives
|
|
(0.3
|
)
|
|
1.1
|
|
||
Net gains (losses) on interest rate derivatives
|
|
25.5
|
|
|
(1.5
|
)
|
||
Net realized gains (losses) on extinguishment of debt
|
|
3.1
|
|
|
2.7
|
|
||
Other income (expense)
|
|
(0.5
|
)
|
|
0.1
|
|
||
Income (loss) on variable interest entities
|
|
0.6
|
|
|
3.7
|
|
||
Expenses:
|
|
|
|
|
||||
Losses and loss expenses (benefit)
|
|
(247.4
|
)
|
|
135.0
|
|
||
Insurance intangible amortization
|
|
28.6
|
|
|
37.5
|
|
||
Operating expenses
|
|
36.4
|
|
|
28.1
|
|
||
Interest expense
|
|
48.1
|
|
|
31.6
|
|
||
Provision for income taxes
|
|
2.6
|
|
|
19.6
|
|
||
Net income (loss) (attributable to common stockholders)
|
|
$
|
305.7
|
|
|
$
|
(125.4
|
)
|
•
|
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)
$0.125
currently outstanding surplus notes (from certain holders of 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 $288.2 million from the
|
•
|
Exchanges 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
of each
$1.00
of principal amount and accrued and unpaid interest on the surplus notes tendered. These exchanges resulted in Ambac Assurance's cancellation of $613.2 million of principal and accrued and unpaid interest of general account surplus notes. These exchanges were accounted for as a debt modification since the creditors before and after the discount remain the same and the change in the terms were 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. 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.
|
•
|
Ambac Assurance issued $240.0 million of new debt secured by certain of Ambac Assurance’s rights to representation and warranty subrogation recoveries above $1.6 billion ("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 exchanges noted above. Refer to
Note 10. Long-term Debt
to the Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q for further information regarding Ambac's debt obligations.
|
•
|
Ambac incurred operating expenses in the first quarter of 2018 for its and the OCI's financial advisors of approximately $13.7 million.
|
|
|
Three Months Ended March 31,
|
||||||
($ in millions)
|
|
2018
|
|
2017
|
||||
Normal Premium Earned:
|
|
|
|
|
||||
Public finance
|
|
$
|
10.0
|
|
|
$
|
18.7
|
|
Structured finance
|
|
5.2
|
|
|
5.7
|
|
||
International finance
|
|
6.3
|
|
|
6.9
|
|
||
Total normal premiums earned
|
|
21.5
|
|
|
31.3
|
|
||
Accelerated Earnings:
|
|
|
|
|
||||
Public finance
|
|
8.9
|
|
|
16.1
|
|
||
Structured Finance
|
|
0.6
|
|
|
0.2
|
|
||
International finance
|
|
(0.1
|
)
|
|
—
|
|
||
Accelerated earnings
|
|
9.4
|
|
|
16.3
|
|
||
Total net premiums earned
|
|
$
|
30.9
|
|
|
$
|
47.6
|
|
|
|
Three Months Ended March 31,
|
||||||
($ in millions)
|
|
2018
|
|
2017
|
||||
Net (losses) on securities sold or called
|
|
$
|
9.7
|
|
|
$
|
(6.8
|
)
|
Net foreign exchange gains (losses)
|
|
(4.8
|
)
|
|
1.9
|
|
||
Total net realized gains (losses)
|
|
$
|
4.9
|
|
|
$
|
(4.9
|
)
|
|
|
Three Months Ended March 31,
|
||||||
($ in millions)
|
|
2018
|
|
2017
|
||||
Foreign exchange gain/(loss)
|
|
$
|
(1.2
|
)
|
|
$
|
(0.6
|
)
|
Other
|
|
0.7
|
|
|
0.7
|
|
||
Total other income (expense)
|
|
$
|
(0.5
|
)
|
|
$
|
0.1
|
|
|
|
Three Months Ended March 31,
|
||||||
($ in millions)
|
|
2018
|
|
2017
|
||||
RMBS
(1)
|
|
$
|
45.8
|
|
|
$
|
(8.7
|
)
|
Domestic Public Finance
|
|
(11.3
|
)
|
|
169.2
|
|
||
Student Loans
|
|
2.9
|
|
|
2.3
|
|
||
Ambac UK
|
|
(14.9
|
)
|
|
(73.8
|
)
|
||
All other credits
|
|
(2.3
|
)
|
|
2.2
|
|
||
Interest on Deferred Amounts
|
|
20.6
|
|
|
43.8
|
|
||
Discount on Rehabilitation Exit Transactions
|
|
$
|
(288.2
|
)
|
|
$
|
—
|
|
Totals
(2)
|
|
$
|
(247.4
|
)
|
|
$
|
135.0
|
|
(1)
|
The losses and loss expense (benefit) associated with changes in estimated representation and warranties was $0.8 and $13.8 for the
three months ended March 31, 2018
and 2017, respectively.
|
(2)
|
Includes loss expenses incurred of $7.5 and $18.2 for the
three months ended March 31, 2018
and 2017, respectively.
|
•
|
Discount achieved pursuant to the Rehabilitation Exit Transactions;
|
•
|
Lower projected losses in domestic public finance largely driven by the favorable impact of higher discount rates partially offset by some adverse development on Puerto Rico policies;
|
•
|
A portion of Ambac UK's loss reserves are denominated in currencies other than their functional currency of British Pounds resulting in incurred losses (gains) when the British Pound depreciates (appreciates). Ambac recognized $11.0 million in foreign exchange gains for the
three months ended March 31, 2018
; partially offset by,
|
•
|
Higher projected losses in the RMBS portfolio largely driven by the impact of interest rates on excess spread;
|
•
|
Interest on Deferred Amounts through the Rehabilitation Exit Transactions date.
|
•
|
Higher projected losses in domestic public finance largely driven by negative development on insured Puerto Rico bonds;
|
•
|
Interest on Deferred Amounts;
|
•
|
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 Re plc ("Ballantyne") against JP Morgan Investment Management Inc. ("JPMIM");
|
•
|
A portion of Ambac UK's loss reserves are denominated in currencies other than their functional currency of British Pounds resulting in incurred losses (gains) when the British Pound depreciates (appreciates). Ambac recognized $5.8 million in foreign exchange gains for the
three months ended March 31, 2017
.
|
|
|
Three Months Ended March 31,
|
||||||
($ in millions)
|
|
2018
|
|
2017
|
||||
Claims recorded
(1) (2) (3)
|
|
$
|
56.7
|
|
|
$
|
61.8
|
|
Subrogation received
(4)
|
|
(39.0
|
)
|
|
(65.2
|
)
|
||
Net Claims Recorded
|
|
$
|
17.7
|
|
|
$
|
(3.4
|
)
|
(1)
|
Claims recorded include (i) claims paid, including commutation payments and (ii) changes in claims not yet paid for policies allocated to the Segregated Account, including Deferred Amounts and changes in unpresented claims. 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 amended Segregated Account Rehabilitation Plan and associated rules and guidelines. Claims recorded exclude interest accrued on Deferred Amounts. On February 12, 2018, the rehabilitation of the Segregated Account was concluded and all Deferred Amounts, including accrued interest, were settled. Subsequent to the Rehabilitation Exit Transactions, claims are paid in full.
|
(2)
|
Claims recorded for the
three months ended March 31, 2018
include a reduction of $4.5 million resulting from the Rehabilitation Exit Transactions.
|
(3)
|
Claims recorded includes claims paid on Puerto Rico policies of $27.1 and $14.4 for the
three months ended March 31, 2018
and 2017, respectively.
|
(4)
|
Subrogation received declined due to the continuous runoff of the RMBS insured portfolio and the impact of higher interest rates on excess spread.
|
|
|
Three Months Ended March 31,
|
||||||
($ in millions)
|
|
2018
|
|
2017
|
||||
Compensation
|
|
$
|
15.8
|
|
|
$
|
12.9
|
|
Non-compensation
|
|
20.5
|
|
|
14.8
|
|
||
Gross operating expenses
|
|
36.3
|
|
|
27.8
|
|
||
Reinsurance commissions, net
|
|
0.1
|
|
|
0.3
|
|
||
Total operating expenses
|
|
$
|
36.4
|
|
|
$
|
28.1
|
|
•
|
Higher compensation costs primarily due to (i) $2.4 million increase of long term incentive compensation costs driven by an improvement in performance factors in addition to new awards issued and (ii) $0.9 million related to the settlement of a previously granted performance restricted stock unit award issued to the former CEO. Such award vested upon the Segregated Account's exit from rehabilitation. These costs were partially offset by lower salaries as a result of reduced headcount since the first quarter of 2017.
|
•
|
Higher non-compensation costs primarily due to (i) $7.4 million of incremental legal, consulting and advisory fees in connection with the exit from rehabilitation of the Segregated Account, of which $2.2 million relates to legal and consulting services provided for the benefit of OCI, and (ii) $0.9 million of increased other consulting, outside services and subscriptions and data costs. These increased costs were partially offset by (i) a reduction in litigation contingencies of $1.5 million and (ii) lower legal fees.
|
|
|
Three Months Ended March 31,
|
||||||
($ in millions)
|
|
2018
|
|
2017
|
||||
Surplus notes
|
|
$
|
21.0
|
|
|
$
|
30.3
|
|
Investment agreements
|
|
—
|
|
|
0.2
|
|
||
Ambac Note
|
|
22.1
|
|
|
—
|
|
||
Tier 2 Notes
|
|
4.2
|
|
|
—
|
|
||
Secured borrowing
|
|
0.8
|
|
|
1.1
|
|
||
Total interest expense
|
|
$
|
48.1
|
|
|
$
|
31.6
|
|
|
Three Months Ended March 31,
|
||||||
($ in million)
|
2018
|
|
2017
|
||||
Cash provided by (used in):
|
|
|
|
||||
Operating activities
|
$
|
(1,191.6
|
)
|
|
$
|
(4.8
|
)
|
Investing activities
|
657.0
|
|
|
232.5
|
|
||
Financing activities
|
(50.2
|
)
|
|
(200.3
|
)
|
||
Foreign exchange impact on cash and cash equivalents
|
(0.3
|
)
|
|
0.5
|
|
||
Net cash flow
|
$
|
(585.1
|
)
|
|
$
|
27.9
|
|
•
|
The cash outflow from the Rehabilitation Exit Transactions to third parties was $1,353.5 million of which $1,162.3 million is included in operating activities and $191.2 is included in financing activities as it relates to payments for surplus note principal. See
Note 1. Background and Business Description
to the Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q and
Note 1. Background and Business Description
in the Notes to Consolidated Financial Statements included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2017
for details regarding the Rehabilitation Exit Transactions.
|
•
|
Net loss and loss expenses paid, including commutation payments, during the
three months ended March 31, 2018
and 2017 are detailed below:
|
(1)
|
Net losses paid includes claims paid on Puerto Rico policies of $27.1 million and $14.4 million for the
three months ended March 31, 2018
and 2017, respectively.
|
•
|
Invested assets and cash were reduced by cash outflow of $1,354 million and settlement of Ambac-insured RMBS securities held in the investment portfolio of $1,455 million, partially offset by the receipt of $768 million par amount of the Secured Notes and proceeds from the issuance of Tier 2 notes of $240 million.
|
•
|
Loss Reserves and Subrogation Recoverable were reduced and increased, respectively, as a result of the settlement of unpaid claims of the Segregated Account, which were approximately $3,867 million (including $840 million of accrued interest) at December 31, 2017. Loss Reserves included $3,080 million of unpaid claims at December 31, 2017. Subrogation Recoverable was net of $787 million of unpaid claims at December 31, 2017. Following the settlement of Deferred Amounts, Loss Reserves decreased $2,555 million and Subrogation Recoverable increased $1,312 million. As a result of the settlement of unpaid claims, certain policies which were previously in a liability position have transitioned to an asset position with a recoverable of $525 million at December 31, 2017.
|
•
|
Long-term debt has been increased by the Ambac Note issued to Ambac LSNI with a carrying value of approximately $2,148 million and the issuance of Tier 2 Notes with a carrying value of approximately $234 million, partially offset by the consolidated reduction of surplus notes principal with a carrying value of approximately $413 million. Refer to
Note 10. Long-term Debt
to the Consolidated Financial Statements, included in Part I, Item 1 in this Form 10-Q for further information regarding Ambac's debt obligations.
|
($ in millions)
|
|
March 31,
2018 |
|
December 31,
2017 |
||||
Fixed income securities
|
|
$
|
3,872.0
|
|
|
$
|
4,652.2
|
|
Short-term
|
|
321.1
|
|
|
557.3
|
|
||
Other investments
|
|
419.9
|
|
|
431.6
|
|
||
Fixed income securities pledged as collateral
|
|
84.2
|
|
|
99.7
|
|
||
Total investments
(1)
|
|
$
|
4,697.2
|
|
|
$
|
5,740.8
|
|
(1)
|
Includes investments denominated in non-US dollar currencies with a fair value of
£203.0
(
$284.9
) and
€41.3
(
$50.9
) as of
March 31, 2018
and
£209.8
(
$283.6
) and
€40.9
(
$49.1
) as of
December 31, 2017
.
|
($ in millions)
|
|
March 31,
2018 |
|
December 31,
2017 |
||||
Residential mortgage-backed securities:
|
|
|
|
|
||||
RMBS—Second Lien
|
|
$
|
335.7
|
|
|
$
|
839.9
|
|
RMBS—First-lien—Alt-A
|
|
$
|
285.8
|
|
|
$
|
1,029.4
|
|
RMBS—First Lien—Sub Prime
|
|
201.8
|
|
|
382.0
|
|
||
Total residential mortgage-backed securities
|
|
823.3
|
|
|
2,251.3
|
|
||
Other asset-backed securities
|
|
|
|
|
||||
Military Housing
|
|
240.1
|
|
|
243.4
|
|
||
Student Loans
|
|
166.1
|
|
|
152.1
|
|
||
Structured Insurance
|
|
134.3
|
|
|
137.6
|
|
||
Auto
|
|
26.5
|
|
|
31.6
|
|
||
Credit Cards
|
|
22.4
|
|
|
33.0
|
|
||
Other
|
|
0.2
|
|
|
0.2
|
|
||
Total other asset-backed securities
|
|
589.6
|
|
|
597.9
|
|
||
Total
(1)
|
|
$
|
1,412.9
|
|
|
$
|
2,849.2
|
|
(1)
|
Includes investments guaranteed by Ambac Assurance and Ambac UK for both periods presented. Refer to
Note 8. Investments
to the
|
(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
66%
and
64%
of the
2018
and
2017
combined fixed income portfolio, respectively.
|
Currency
(Amounts in millions) |
|
Premium Receivable in
Payment Currency |
|
Premium Receivable in
U.S. Dollars |
||||
U.S. Dollars
|
|
$
|
379.4
|
|
|
$
|
379.4
|
|
British Pounds
|
|
£
|
116.8
|
|
|
163.9
|
|
|
Euros
|
|
€
|
29.8
|
|
|
36.7
|
|
|
Australian Dollars
|
|
A$
|
1.0
|
|
|
0.7
|
|
|
Total
|
|
|
|
$
|
580.7
|
|
|
|
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)
|
|
|
||||||||||||||
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss and loss expense reserves
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,593
|
|
|
$
|
(325
|
)
|
|
$
|
(129
|
)
|
|
$
|
2,139
|
|
Subrogation recoverable
|
|
—
|
|
|
—
|
|
|
275
|
|
|
(2,170
|
)
|
|
—
|
|
|
(1,895
|
)
|
||||||
Totals
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,868
|
|
|
$
|
(2,495
|
)
|
|
$
|
(129
|
)
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
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
|
|
(1)
|
Present value of future recoveries include R&W subrogation recoveries of
$1,834
at
March 31, 2018 and December 31, 2017
.
|
(2)
|
Includes Euro denominated gross loss and loss expense reserves. US dollar equivalents of such reserves were
$21
(
€17
) and
$21
(
€18
) at
March 31, 2018 and December 31, 2017
, respectively.
|
|
|
Gross
Par
Outstanding
(1)(2)
|
|
Unpaid Claims
|
|
Present Value of Expected
Net Cash Flows |
|
Unearned
Premium Revenue |
|
Gross Loss
and Loss Expense Reserves (1)(3) |
||||||||||||||||||
($ in millions)
|
|
|
Claims
|
|
Accrued
Interest |
|
Claims and
Loss Expenses |
|
Recoveries
|
|
|
|||||||||||||||||
March 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
RMBS
|
|
$
|
4,635
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
868
|
|
|
$
|
(2,057
|
)
|
|
$
|
(18
|
)
|
|
$
|
(1,207
|
)
|
Domestic Public Finance
|
|
3,820
|
|
|
—
|
|
|
—
|
|
|
1,218
|
|
|
(389
|
)
|
|
(73
|
)
|
|
756
|
|
|||||||
Student Loans
|
|
694
|
|
|
—
|
|
|
—
|
|
|
362
|
|
|
(39
|
)
|
|
(11
|
)
|
|
312
|
|
|||||||
Ambac UK
|
|
942
|
|
|
—
|
|
|
—
|
|
|
311
|
|
|
(10
|
)
|
|
(19
|
)
|
|
282
|
|
|||||||
Other credits
|
|
509
|
|
|
—
|
|
|
—
|
|
|
22
|
|
|
—
|
|
|
(8
|
)
|
|
14
|
|
|||||||
Loss expenses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|
—
|
|
|
—
|
|
|
87
|
|
|||||||
Totals
|
|
$
|
10,600
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,868
|
|
|
$
|
(2,495
|
)
|
|
$
|
(129
|
)
|
|
$
|
244
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
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
|
|
(1)
|
Ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves are $550 and $39, respectively, at
March 31, 2018
and $590 and $41, respectively at
December 31, 2017
. Ceded loss and loss expense reserves are included in Reinsurance recoverable on paid and unpaid losses.
|
(2)
|
Gross Par Outstanding includes capital appreciation bonds, which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bond.
|
(3)
|
Loss reserves are included in the balance sheet as Loss and loss expense reserves or Subrogation recoverable dependent on if a policy is in a net liability or net recoverable position.
|
($ 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 |
||||||||
March 31, 2018:
|
|
|
|
|
|
|
|
|
||||||||
Second-lien
|
|
$
|
831
|
|
|
$
|
257
|
|
|
$
|
—
|
|
|
$
|
257
|
|
First-lien Mid-prime
|
|
1,738
|
|
|
89
|
|
|
—
|
|
|
89
|
|
||||
First-lien Sub-prime
|
|
659
|
|
|
102
|
|
|
—
|
|
|
102
|
|
||||
Other
|
|
121
|
|
|
7
|
|
|
—
|
|
|
7
|
|
||||
Total Credits Without Subrogation
|
|
3,349
|
|
|
455
|
|
|
—
|
|
|
455
|
|
||||
Second-lien
|
|
527
|
|
|
8
|
|
|
(1,275
|
)
|
|
(1,267
|
)
|
||||
First-lien Mid-prime
|
|
54
|
|
|
6
|
|
|
(78
|
)
|
|
(72
|
)
|
||||
First-lien Sub-prime
|
|
705
|
|
|
158
|
|
|
(481
|
)
|
|
(323
|
)
|
||||
Total Credits With Subrogation
|
|
1,286
|
|
|
172
|
|
|
(1,834
|
)
|
|
(1,662
|
)
|
||||
Total
|
|
$
|
4,635
|
|
|
$
|
627
|
|
|
$
|
(1,834
|
)
|
|
$
|
(1,207
|
)
|
|
|
|
|
|
|
|
|
|
||||||||
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
|
|
|
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||
Issuer Type
($ in millions) |
|
Gross Par
Outstanding (1) |
|
Gross Loss
Reserves |
|
Gross Par
Outstanding (1) |
|
Gross Loss
Reserves |
||||||||
Lease and tax-backed
|
|
$
|
2,196
|
|
|
$
|
618
|
|
|
$
|
2,201
|
|
|
$
|
650
|
|
General obligation
|
|
984
|
|
|
53
|
|
|
1,053
|
|
|
60
|
|
||||
Transportation revenue
|
|
93
|
|
|
45
|
|
|
495
|
|
|
64
|
|
||||
Housing
|
|
447
|
|
|
29
|
|
|
449
|
|
|
31
|
|
||||
Other
|
|
100
|
|
|
11
|
|
|
67
|
|
|
11
|
|
||||
Total
|
|
$
|
3,820
|
|
|
$
|
756
|
|
|
$
|
4,265
|
|
|
$
|
816
|
|
(1)
|
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.
|
•
|
Statutory net income of
$199.4 million
. Statutory net income was positively impacted by the Second Amended Plan of Rehabilitation whereby Ambac Assurance settled its unpaid claims at a discount of approximately $288 million which was recognized as a reduction to losses incurred, partially offset by the loss on extinguishment of surplus notes received of $43.0 million.
|
•
|
In connection with the Second Amended Plan of Rehabilitation, the par amount of Ambac Assurance's remaining surplus notes of
$361.5
million was reclassified from liabilities to a component of policyholders surplus.
|
•
|
A decrease from a one-time interest payment on the remaining surplus notes (other than junior surplus notes) of
$13.5
million.
|
•
|
Non-credit impairment fair value (gain) loss on credit derivatives:
Elimination of the non-credit impairment fair value gains (losses) on credit derivatives, which is the amount in excess of the present value of the expected estimated credit losses. Such fair value adjustments are affected by, and in part fluctuate with, changes in market factors such as interest rates and credit spreads, including the market’s perception of Ambac’s credit risk (“Ambac CVA”), and are not expected to result in an economic gain or loss. These adjustments allow for all financial guarantee contracts to be accounted for consistent with the Financial Services – Insurance Topic of ASC, whether or not they are subject to derivative accounting rules.
|
•
|
Insurance intangible amortization:
Elimination of the amortization of the financial guarantee insurance intangible asset that arose as a result of Ambac’s emergence from bankruptcy and the implementation of Fresh Start reporting. This adjustment ensures that all financial guarantee contracts are accounted for consistent with the provisions of the Financial Services – Insurance Topic of the ASC.
|
•
|
Foreign exchange (gains) losses:
Elimination of the foreign exchange gains (losses) on the re-measurement of assets, liabilities and transactions in non-functional currencies. This
|
•
|
Fair value (gain) loss on interest rate derivative from Ambac CVA:
Elimination of the gains (losses) relating to Ambac’s
|
|
Three Months Ended March 31,
|
||||||||||||||
|
2018
|
|
2017
|
||||||||||||
($ in millions, except share data)
|
$ Amount
|
|
Per Diluted Share
|
|
$ Amount
|
|
Per Diluted Share
|
||||||||
Net income (loss) attributable to common stockholders
|
$
|
305.7
|
|
|
$
|
6.70
|
|
|
$
|
(125.4
|
)
|
|
$
|
(2.77
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Non-credit impairment fair value (gain) loss on credit derivatives
|
0.5
|
|
|
0.01
|
|
|
1.7
|
|
|
0.04
|
|
||||
Insurance intangible amortization
|
28.6
|
|
|
0.63
|
|
|
37.5
|
|
|
0.83
|
|
||||
Foreign exchange (gains) losses
|
(5.0
|
)
|
|
(0.12
|
)
|
|
(7.1
|
)
|
|
(0.16
|
)
|
||||
Fair value (gain) loss on interest rate derivatives from Ambac CVA
|
—
|
|
|
—
|
|
|
2.0
|
|
|
0.05
|
|
||||
Adjusted earnings (loss)
|
$
|
329.8
|
|
|
$
|
7.22
|
|
|
$
|
(91.2
|
)
|
|
$
|
(2.01
|
)
|
•
|
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 fair values are affected by, and in part fluctuate with, changes in market factors such as interest rates, credit spreads, including Ambac’s CVA that are not expected to result in an economic gain or loss. These adjustments allow for all financial guarantee contracts to be accounted for within Adjusted Book Value consistent with the provisions of the Financial Services—Insurance Topic of the ASC, whether or not they are subject to derivative accounting rules.
|
•
|
Insurance intangible asset:
Elimination of the financial guarantee insurance intangible asset that arose as a result of
|
•
|
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 ("UPR") on financial guarantee contracts, in excess of expected losses, net of reinsurance. This non-GAAP adjustment presents the economics of UPR and expected losses for financial guarantee contracts on a consistent basis. In accordance with GAAP, stockholders’ equity reflects a reduction for expected losses only to the extent they exceed UPR. However, when expected losses are less than UPR for a financial guarantee contract, neither expected losses nor UPR have an impact on stockholders’ equity. This non-GAAP adjustment adds UPR in excess of expected losses, net of reinsurance, to stockholders’ equity for financial guarantee contracts where expected losses are less than UPR.
|
•
|
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.
|
|
March 31, 2018
|
|
December 31, 2017
|
||||||||||||
($ in millions, except share data)
|
$ Amount
|
|
Per Share
|
|
$ Amount
|
|
Per Share
|
||||||||
Total Ambac Financial Group, Inc. stockholders’ equity
|
$
|
1,845.1
|
|
|
$
|
40.70
|
|
|
$
|
1,381.1
|
|
|
$
|
30.52
|
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Non-credit impairment fair value losses on credit derivatives
|
1.0
|
|
|
0.02
|
|
|
0.6
|
|
|
0.01
|
|
||||
Insurance intangible asset
|
(833.0
|
)
|
|
(18.37
|
)
|
|
(847.0
|
)
|
|
(18.71
|
)
|
||||
Net unearned premiums and fees in excess of expected losses
|
570.9
|
|
|
12.59
|
|
|
597.3
|
|
|
13.20
|
|
||||
Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income
|
(153.1
|
)
|
|
(3.38
|
)
|
|
(30.8
|
)
|
|
(0.68
|
)
|
||||
Adjusted book value
|
$
|
1,430.9
|
|
|
$
|
31.56
|
|
|
$
|
1,101.3
|
|
|
$
|
24.34
|
|
|
|
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
|
|
$
|
264
|
|
|
$
|
179
|
|
|
$
|
90
|
|
|
$
|
—
|
|
|
$
|
(100
|
)
|
|
$
|
(195
|
)
|
Estimated net fair value
|
|
(620
|
)
|
|
(705
|
)
|
|
(794
|
)
|
|
(884
|
)
|
|
(984
|
)
|
|
(1,079
|
)
|
(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
|
|
$
|
(20
|
)
|
|
$
|
(4
|
)
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
8
|
|
Estimated fair value
|
|
(30
|
)
|
|
(14
|
)
|
|
(10
|
)
|
|
(6
|
)
|
|
(2
|
)
|
|
|
Change in Spreads
|
||||||||||||||||||
($ in millions)
|
|
250 basis point widening
|
|
50 basis point widening
|
|
Base scenario
|
|
50 basis point narrowing
(1)
|
|
250 basis point narrowing
(1)
|
||||||||||
Estimated change in fair value
|
|
$
|
(87
|
)
|
|
$
|
(18
|
)
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
54
|
|
Estimated fair value
|
|
2,261
|
|
|
2,330
|
|
|
2,348
|
|
|
2,367
|
|
|
2,402
|
|
(1)
|
Incorporates a credit spread floor of 0 basis points.
|
|
|
Change in Foreign Exchange Rates Against U.S. Dollar
|
||||||||||||||
($ in millions)
|
|
20%
Decrease |
|
10%
Decrease |
|
10%
Increase |
|
20%
Increase |
||||||||
Estimated change in fair value
|
|
$
|
(68
|
)
|
|
$
|
(34
|
)
|
|
$
|
34
|
|
|
$
|
68
|
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
(a)
|
Unregistered Sales of Equ
ity Securities
|
(b)
|
Purchases of Equity Securities By the Issuer and Affiliated Purchasers
|
|
|
Total Shares Purchased
(1)
|
|
Average Price Paid Per Share
|
|
Total Number of Shares Purchased as Part of Publicly Announced Plan
(1)
|
|
Maximum Number of Shares That may Yet be Purchased Under the Plan
|
|||||
January 2018
|
|
—
|
|
|
$
|
—
|
|
|
—
|
|
|
—
|
|
February 2018
|
|
54,463
|
|
|
15.51
|
|
|
—
|
|
|
—
|
|
|
March 2018
|
|
11,933
|
|
|
15.09
|
|
|
—
|
|
|
—
|
|
|
First Quarter 2018
|
|
66,396
|
|
|
$
|
15.44
|
|
|
—
|
|
|
—
|
|
(1)
|
There were no other repurchases of equity securities made during the
three months ended March 31, 2018
. Ambac does not have a stock repurchase program.
|
Exhibit
Number |
|
Description
|
10.1+
|
|
|
10.2+
|
|
|
10.3+
|
|
|
10.4+
|
|
|
10.5+
|
|
|
12.1+
|
|
|
31.1+
|
|
|
31.2+
|
|
|
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.
|
|
|
AMBAC FINANCIAL GROUP, INC.
|
|
|
|
|
|
Dated:
|
May 9, 2018
|
By:
|
/S/ DAVID TRICK
|
|
|
Name:
|
David Trick
|
|
|
Title:
|
Chief Financial Officer and Treasurer
(Duly Authorized Officer and Principal Financial Officer) |
(a)
|
If a dividend with respect to shares of Common Stock is payable in cash, then, as of the applicable dividend payment date, the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the cash dividend payable with respect to a share of Common Stock, multiplied by (ii) the number of Restricted Stock Units outstanding (i.e., the number of Restricted Stock Units granted hereunder less the number of such Restricted Stock Units that have settled in accordance with Section 6 below) on the applicable dividend record date plus the number of previously credited Dividend Equivalent Units with respect to such Restricted Stock Units, if any, divided by (iii) the Fair Market Value of a share of Common Stock on the dividend payment date.
|
(a)
|
Notwithstanding the provisions of Section 4, if the Participant’s Termination Date occurs due to death, Disability (as defined in Section 5(b)), involuntary termination by the Company other than for Cause (as defined in Section 5(b)), as a result of the Company’s failure to extend the term of the Employment Agreement between Ambac, AAC and the Participant, dated as of [
DATE
] (the “Employment Agreement”), pursuant to Section 2 thereof, termination by the Participant for Good Reason (as defined in Section 5(b)) or Retirement (as defined in Section 5(b)), all Restricted Stock Units and associated Dividend Equivalent Units shall vest upon the Participant’s Termination Date.
|
(b)
|
For purposes of the Award evidenced by this Agreement, (i) the terms “Cause,” “Disability” and “Good Reason” shall have the meanings specified in the Employment Agreement, and (ii) the Participant’s Termination Date shall be considered to occur on account of Retirement if the Participant’s Termination Date occurs on or after the date on which the Participant has attained age 55 and such termination date does not occur for any other reason.
|
(a)
|
and if the Participant is a specified employee (within the meaning of section 409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be made or provided prior to the first day of the seventh month following the Participant’s separation from
|
(b)
|
the determination as to whether the Participant has had a termination of employment (or separation from service) shall be made in accordance with the provisions of section 409A of the Code and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder.
|
(a)
|
If a dividend with respect to shares of Common Stock is payable in cash, then, as of the applicable dividend payment date, the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the cash dividend payable with respect to a share of Common Stock, multiplied by (ii) the number of Restricted Stock Units outstanding (i.e., the number of Restricted Stock Units granted hereunder less the number of such Restricted Stock Units that have settled in accordance with Section 6 below) on the applicable dividend record date plus the number of previously credited Dividend Equivalent Units with respect to such Restricted Stock Units, if any, divided by (iii) the Fair Market Value of a share of Common Stock on the dividend payment date.
|
(b)
|
If a dividend with respect to shares of Common Stock is payable in shares of Common Stock, then, as of the dividend payment date, the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the number of shares of Common Stock distributed in the dividend with respect to a share of Common Stock, multiplied by (ii) the number of Restricted Stock Units outstanding on the applicable dividend record date plus the number of previously credited Dividend Equivalent Units with respect to such Restricted Stock Units, if any.
|
(a)
|
Notwithstanding the provisions of Section 4, if the Participant’s Termination Date occurs on or after the six (6) month anniversary of the Grant Date by reason of death, Disability (as defined in Section 5(b)), involuntary termination by the Company other than for Cause (as defined in Section 5(b)), or Retirement (as defined in Section 5(b)), all Restricted Stock Units and associated Dividend Equivalent Units shall vest upon the Participant’s Termination Date.
|
(b)
|
For purposes of the Award evidenced by this Agreement, (i) a Participant’s Termination Date shall be considered to occur by reason of Disability if his Termination Date occurs on or after the date on which he is entitled to long-term disability benefits under the Company’s long-term disability plan (or, if the Participant is not eligible for such plan, if the Participant would be entitled to benefits under such plan if he were eligible) and such Termination Date does not occur for any other reason, (ii) the Participant’s Termination Date shall be considered to occur by reason of Cause if the Participant’s Termination Date occurs by reason of termination by the Company and is on account of (A) any act or omission by the Participant resulting in, or intending to result in, personal gain at the expense of the Company; (B) the improper disclosure by the Participant of proprietary or confidential information of the Company; (C) misconduct by the Participant, including, but not limited to, fraud, intentional violation of, or negligent disregard for, the rules and procedures of the Company (including the code of business conduct), theft, violent acts or threats of violence, or possession of
|
(a)
|
and if the Participant is a specified employee (within the meaning of section 409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be made or provided prior to the first day of the seventh month following the Participant’s separation from service or termination of employment, such payment or benefit shall be delayed until the first day of the seventh month following the Participant’s separation from service; and
|
(b)
|
the determination as to whether the Participant has had a termination of employment (or separation from service) shall be made in accordance with the provisions of section 409A of the Code and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder.
|
(a)
|
All Performance Stock Units shall be unearned and unvested unless and until they become earned and vested and nonforfeitable in accordance with this Section 3. The Participant shall have the ability to earn between 0% and 200% of the Target Performance Units, as determined by the Committee, based on the continuing employment of the Participant during the period beginning on January 1, 2018 and ending on the December 31, 2020 (the “Performance Period”) and satisfaction of the Performance Goals set forth in Exhibit A hereto (which is incorporated into and forms part of this Agreement). Any Performance Stock Units granted pursuant to this Agreement that become earned in accordance with this Agreement shall be referred to herein as “Earned Performance Units”. Except as provided in Section 3(b), if the Participant’s termination of employment or service with the Company (the “Termination Date”) occurs for any reason prior to the last day of the Performance Period, the Participant’s right to all Performance Stock Units (and any associated Dividend Equivalent Units) awarded or credited to the Participant pursuant to this Agreement shall expire and be forfeited immediately and the Participant shall have no further rights with respect to any of the Performance Stock Units (or associated Dividend Equivalent Units). The Earned Performance Units (and any associated Earned Dividend Equivalent Units) shall be settled in accordance with Section 5 hereof.
|
(b)
|
Notwithstanding the provisions of Section 3(a), if the Participant’s Termination Date occurs prior to the last day of the Performance Period by reason of death, Disability (as defined in Section 3(c)), involuntary termination by the Company other than for Cause (as defined in Section 3(c)), as a result of the Company’s failure to extend the term of the Employment Agreement between Ambac, AAC and the Participant, dated as of [
Date
] (the “Employment Agreement”), pursuant to Section 2 thereof, termination by the Participant for Good Reason (as defined in Section 3(c)) or Retirement (as defined in Section 3(c), the Participant (or, in the event of his death, his beneficiary) shall be entitled to receive the number of Earned Performance Units (and any associated Earned Dividend Equivalent Units) that the Participant would have been entitled to receive had his Termination Date not occurred prior to the end of the Performance Period based on actual satisfaction of the Performance Goals; pro-rated to reflect the Participant’s actual service plus twelve (12) months during the Performance Period; determined by a fraction, (i) the numerator of which is the number of days during the Performance Period prior to and including the Termination Date plus the number of days in the next twelve (12) months, and (ii) the denominator of which is the total number of days in the Performance Period. The pro-rated service period fraction shall not exceed 100%.
|
(c)
|
For purposes of the Award evidenced by this Agreement, (i) the terms “Cause,” “Disability” and “Good Reason” shall have the meanings specified in the Employment Agreement, and (ii) the Participant’s Termination Date shall be considered to occur on account of Retirement if the Participant’s Termination Date occurs on or after the date on which the Participant has attained age 55 and such termination date does not occur for any other reason.
|
(a)
|
If, during the Performance Period, a dividend with respect to shares of Common Stock is paid in cash, then as of the dividend payment date, the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the cash dividend paid with respect to a share of Common Stock, multiplied by (ii) 200% of the Target Performance Units (the “Maximum Performance Units”) plus the number of previously credited Dividend Equivalent Units with respect to such Performance Stock Units, if any, divided by (iii) the Fair Market Value of a share of Common Stock on the dividend payment date, rounded down to the nearest whole number.
|
(b)
|
If, during the Performance Period, a dividend with respect to shares of Common Stock is paid in shares of Common Stock, then as of the dividend payment date the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the number of shares of Common Stock distributed in the dividend with respect to a share of Common Stock, multiplied by (ii)(A) the number of Maximum Performance Units plus (B) the number of previously credited Dividend Equivalent Units with respect to such Performance Stock Units, if any, rounded down to the nearest whole number.
|
(a)
|
and if the Participant is a specified employee (within the meaning of section 409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be made or provided prior to the first day of the seventh month following the Participant’s separation from service or termination of employment, such payment or benefit shall be delayed until the first day of the seventh month following the Participant’s separation from service; and
|
(b)
|
the determination as to whether the Participant has had a termination of employment (or separation from service) shall be made in accordance with the provisions of section 409A of the Code and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder.
|
|
|
AAC
|
AFG
|
|
Rating
|
Payout Multiple
|
Adjusted Net Asset Value
($mm)
|
WLACC Outstanding ($bn)
|
Cumulative EBITDA ($mm)
|
1
|
2.00
|
$(300)
|
$15.50
|
$30
|
2
|
1.00
|
$(500)
|
$16.60
|
$17
|
3
|
0.00
|
$(650)
|
$18.80
|
$0
|
•
|
neutralize the effects of claim payments, loss expense payments, advisor payments and the establishment of loss and loss expense reserves for credits that do not have a GCL, as defined below, at the beginning of the Performance Period;
|
•
|
measure AAC’s foreign subsidiaries utilizing the foreign exchange rate at the beginning of the Performance Period;
|
•
|
add back costs related to AAC restructuring or ongoing OCI oversight during performance period; and
|
•
|
add back direct costs of risk remediation activities with respect to credits within WLACC.
|
•
|
advisor and deal/transaction related costs related to AFG and AAC capital and/or M&A transactions above or below budgeted amounts
(1)
;
|
•
|
cost of post-employment guarantees;
|
•
|
cost and impact of AAC and AFG share repurchase (direct and synthetic)
(2)
;
|
•
|
changes to Board fees and Board imposed expenses;
|
•
|
litigation and defense costs and any potential litigation gains in excess of damages incurred;
|
•
|
(cost)/benefit of performance based compensation (above) or below target amounts; and
|
•
|
any other costs as determined in the sole discretion of the Board.
|
1)
|
EBITDA from new business operations during the performance period will be recognized net of any excluded advisor and/or deal costs incurred during such period.
|
2)
|
Cost to be calculated based on (i) the amount of capital allocated to share repurchase multiplied by (ii) LIBOR + the average spread earned on AFG investments from the time of such allocation through the end of the performance period. For the avoidance of doubt, gains or losses from repurchases are also excluded from the EBITDA calculation.
|
(a)
|
All Performance Stock Units shall be unearned and unvested unless and until they become earned and vested and nonforfeitable in accordance with this Section 3. The Participant shall have the ability to earn between 0% and 200% of the Target Performance Units, as determined by the Committee, based on the continuing employment of the Participant during the period beginning on January 1, 2018 and ending on the December 31, 2020 (the “Performance Period”) and satisfaction of the Performance Goals set forth in Exhibit A hereto (which is incorporated into and forms part of this Agreement). Any Performance Stock Units granted pursuant to this Agreement that become earned in accordance with this Agreement shall be referred to herein as “Earned Performance Units”. Except as provided in Section 3(b), if the Participant’s termination of employment or service with the Company (the “Termination Date”) occurs for any reason prior to the last day of the Performance Period, the Participant’s right to all Performance Stock Units (and any associated Dividend Equivalent Units) awarded or credited to the Participant pursuant to this Agreement shall expire and be forfeited immediately and the Participant shall have no further rights with respect to any of the Performance Stock Units (or associated Dividend Equivalent Units). The Earned Performance Units (and any associated Earned Dividend Equivalent Units) shall be settled in accordance with Section 5 hereof.
|
(b)
|
Notwithstanding the provisions of Section 3(a), if the Participant’s Termination Date occurs on or after six months from the beginning of the Performance Period and prior to the last day of the Performance Period by reason of death, Disability (as defined in Section 3(c)), involuntary termination by the Company other than for Cause (as defined in Section 3(c)), or Retirement (as defined in Section 3(c), the Participant (or, in the event of his or her death, his or her beneficiary) shall be entitled to receive the number of Earned Performance Units (and any associated Earned Dividend Equivalent Units) that the Participant would have been entitled to receive had the Termination Date not occurred prior to the end of the Performance Period based on actual satisfaction of the Performance Goals; pro-rated to reflect the Participant’s actual service plus twelve (12) months during the Performance Period; determined by a fraction, (i) the numerator of which is the number of days during the Performance Period prior to and including the Termination Date plus the number of days in the next twelve (12) months, and (ii) the denominator of which is the total number of days in the Performance Period. The pro-rated service period fraction shall not exceed 100%.
|
(c)
|
For purposes of the Award evidenced by this Agreement, (i) a Participant’s Termination Date shall be considered to occur by reason of Disability if his Termination Date occurs on or after the date on which he is entitled to long-term disability benefits under the Company’s long-term disability plan (or, if the Participant is not eligible for such plan, if the Participant would be entitled to benefits under such plan if he were eligible) and such Termination Date does not occur for any other reason, (ii) the Participant’s Termination Date shall be considered to occur by reason of Cause if the Participant’s Termination Date occurs by reason of termination by the Company and is on account of (A) any act or omission by the Participant resulting in, or intending to result in, personal gain at the expense of the Company; (B) the improper disclosure by the Participant of proprietary or confidential information of the Company; (C) misconduct by the Participant, including, but not limited to, fraud, intentional violation of, or negligent disregard for, the rules and procedures of the Company (including the code of business conduct), theft, violent acts or threats of violence, or possession of controlled substances on the property of the Company; or (D) poor performance or other reasons under which the Participant terminates not in good standing; provided, however, that the meaning of “Cause” shall be (1) expanded to include any additional grounds for cause-based termination specified in any contract, policy or plan applicable to the Participant or (2) superseded to the extent expressly provided in such contract, policy or plan, and (iii) the Participant’s Termination Date shall be considered to occur
|
(a)
|
If, during the Performance Period, a dividend with respect to shares of Common Stock is paid in cash, then as of the dividend payment date, the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the cash dividend paid with respect to a share of Common Stock, multiplied by (ii) 200% of the Target Performance Units (the “Maximum Performance Units”) plus the number of previously credited Dividend Equivalent Units with respect to such Performance Stock Units, if any, divided by (iii) the Fair Market Value of a share of Common Stock on the dividend payment date, rounded down to the nearest whole number.
|
(b)
|
If, during the Performance Period, a dividend with respect to shares of Common Stock is paid in shares of Common Stock, then as of the dividend payment date the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the number of shares of Common Stock distributed in the dividend with respect to a share of Common Stock, multiplied by (ii)(A) the number of Maximum Performance Units plus (B) the number of previously credited Dividend Equivalent Units with respect to such Performance Stock Units, if any, rounded down to the nearest whole number.
|
(a)
|
and if the Participant is a specified employee (within the meaning of section 409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be made or provided prior to the first day of the seventh month following the Participant’s separation from service or termination of employment, such payment or benefit shall be delayed until the first day of the seventh month following the Participant’s separation from service; and
|
(b)
|
the determination as to whether the Participant has had a termination of employment (or separation from service) shall be made in accordance with the provisions of section 409A of the Code and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder.
|
|
|
AAC
|
AFG
|
|
Rating
|
Payout Multiple
|
Adjusted Net Asset Value
($mm)
|
WLACC Outstanding ($bn)
|
Cumulative EBITDA ($mm)
|
1
|
2.00
|
$(300)
|
$15.50
|
$30
|
2
|
1.00
|
$(500)
|
$16.60
|
$17
|
3
|
0.00
|
$(650)
|
$18.80
|
$0
|
•
|
neutralize the effects of claim payments, loss expense payments, advisor payments and the establishment of loss and loss expense reserves for credits that do not have a GCL, as defined below, at the beginning of the Performance Period;
|
•
|
measure AAC’s foreign subsidiaries utilizing the foreign exchange rate at the beginning of the Performance Period;
|
•
|
add back costs related to AAC restructuring or ongoing OCI oversight during performance period; and
|
•
|
add back direct costs of risk remediation activities with respect to credits within WLACC.
|
•
|
advisor and deal/transaction related costs related to AFG and AAC capital and/or M&A transactions above or below budgeted amounts
(1)
;
|
•
|
cost of post-employment guarantees;
|
•
|
cost and impact of AAC and AFG share repurchase (direct and synthetic)
(2)
;
|
•
|
changes to Board fees and Board imposed expenses;
|
•
|
litigation and defense costs and any potential litigation gains in excess of damages incurred;
|
•
|
(cost)/benefit of performance based compensation (above) or below target amounts; and
|
•
|
any other costs as determined in the sole discretion of the Board.
|
1)
|
EBITDA from new business operations during the performance period will be recognized net of any excluded advisor and/or deal costs incurred during such period.
|
2)
|
Cost to be calculated based on (i) the amount of capital allocated to share repurchase multiplied by (ii) LIBOR + the average spread earned on AFG investments from the time of such allocation through the end of the performance period. For the avoidance of doubt, gains or losses from repurchases are also excluded from the EBITDA calculation.
|
(a)
|
If a dividend with respect to shares of Common Stock is payable in cash, then, as of the applicable dividend payment date, the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the cash dividend payable with respect to a share of Common Stock, multiplied by (ii) the number of Deferred Share Units outstanding (i.e., the number of Deferred Share Units granted hereunder less the number of such Deferred Share Units that have settled in accordance with Section 5 below) on the applicable dividend record date, divided by (iii) the Fair Market Value of a share of Common Stock on the dividend payment date, rounded down to the nearest whole number.
|
(b)
|
If a dividend with respect to shares of Common Stock is payable in shares of Common Stock, then, as of the dividend payment date, the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the number of shares Common Stock distributed in the dividend with respect to a share of Common Stock, multiplied by (ii) the number of Deferred Share Units outstanding on the applicable dividend record date, rounded down to the nearest whole number.
|
(a)
|
the FICA Obligations;
|
(b)
|
the income tax imposed by section 3401 of the Code (or the corresponding withholding provisions of applicable state, local or foreign tax laws) as a result of the FICA Obligations; and
|
(c)
|
the amount necessary to pay the additional income tax on wages attributable to the pyramiding of the payments under subparagraphs 6(a) and (b).
|
(a)
|
and if the Participant is a specified employee (within the meaning of section 409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be made or provided prior to the first day of the seventh month following the Participant’s separation from service or termination of employment, such payment or benefit shall be delayed until the first day of the seventh month following the Participant’s separation from service (or, if earlier, upon the Participant’s death);
|
(b)
|
the determination as to whether the Participant has had a termination of employment (or separation from service) shall be made in accordance with the provisions of section 409A of the Code and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder; and
|
(c)
|
for purposes of section 409A of the Code, the Participant’s right to receive any installment payments pursuant to this Agreement shall be treated as a right to receive a series of separate and distinct payments.
|
|
|
Three Months Ended March 31, 2018
|
|
|
|
|
|
|
|
|
||||||||||
|
|
|
|
|
Year Ended December 31,
|
|||||||||||||||
($ in thousands, except ratios)
|
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
|||||||||||
Earnings:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Pre-tax income (loss)
|
|
$
|
308,309
|
|
|
$
|
(284,251
|
)
|
|
$
|
105,026
|
|
|
$
|
510,058
|
|
|
$
|
493,253
|
|
Fixed Charges
|
|
47,866
|
|
|
114,306
|
|
|
119,503
|
|
|
115,016
|
|
|
127,754
|
|
|||||
Earnings
|
|
$
|
356,175
|
|
|
$
|
(169,945
|
)
|
|
$
|
224,529
|
|
|
$
|
625,074
|
|
|
$
|
621,007
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed charges:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest expense
|
|
$
|
47,300
|
|
|
$
|
113,400
|
|
|
$
|
118,500
|
|
|
$
|
113,100
|
|
|
$
|
125,891
|
|
Portion of rental expense deemed to be interest
|
|
566
|
|
|
906
|
|
|
1,003
|
|
|
1,916
|
|
|
1,863
|
|
|||||
Fixed charges
|
|
$
|
47,866
|
|
|
$
|
114,306
|
|
|
$
|
119,503
|
|
|
$
|
115,016
|
|
|
$
|
127,754
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Ratio of earnings to fixed charges
|
|
7.4
|
x
|
|
*
|
|
|
1.9
|
x
|
|
5.4
|
x
|
|
4.9
|
x
|
*
|
Earnings were inadequate to cover fixed charges by
$284,251
for the year ended
December 31, 2017
.
|
1.
|
I have reviewed this
Quarterly
Report on Form
10-Q
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:
|
May 9, 2018
|
By:
|
/s/ Claude LeBlanc
|
|
|
|
Claude LeBlanc
President and Chief Executive Officer
|
1.
|
I have reviewed this
Quarterly
Report on Form
10-Q
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:
|
May 9, 2018
|
By:
|
/s/ David Trick
|
|
|
|
David Trick
Chief Financial Officer and Treasurer
|
(1)
|
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
|
(2)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
By:
|
/s/ Claude LeBlanc
|
|
|
Name:
|
Claude LeBlanc
|
|
|
Title:
|
President and Chief Executive Officer
|
|
|
By:
|
/s/ David Trick
|
|
|
Name:
|
David Trick
|
|
|
Title:
|
Chief Financial Officer and Treasurer
|
Dated:
|
May 9, 2018
|
|
|