FORM
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10-K
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x
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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AMBAC FINANCIAL GROUP INC
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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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Item Number
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Page
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Item Number
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Page
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PART II (CONTINUED)
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1
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7A
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Quantitative and Qualitative Disclosures about Market Risk
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8
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Risk Management
Group
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9
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9A
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9B
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1A
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10
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1B
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11
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2
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12
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3
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13
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4
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14
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5
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15
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6
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7
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Executive Summary
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Critical Accounting Policies and Estimates
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Special Purpose and Variable Interest Entities
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Ambac UK Financial Results Under UK Accounting Principles
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•
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Active runoff of Ambac Assurance and its subsidiaries through transaction terminations, policy commutations, reinsurance, settlements and restructurings, with a focus on our watch list credits and known and potential future adversely classified credits, that we believe will improve our risk profile, and maximizing the risk-adjusted return on invested assets;
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•
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Ongoing rationalization of Ambac's and its subsidiaries' capital and liability structures;
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•
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Loss recovery through active litigation management and exercise of contractual and legal rights;
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•
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Ongoing review of the effectiveness and efficiency of Ambac's operating platform; and
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•
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Evaluation of opportunities in certain business sectors that meet acceptable criteria that will generate long-term stockholder value with attractive risk-adjusted returns.
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•
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The Audit Committee oversees the management of risks associated with the integrity of Ambac’s financial statements and its compliance with legal and regulatory requirements. In addition, the Audit Committee discusses policies with respect to risk assessment and risk management, including major financial risk exposures and the steps management has taken to monitor and control such exposures. The Audit Committee reviews with management, internal auditors and external auditors Ambac's accounting policies, Ambac's system of internal controls over financial reporting and the quality and appropriateness of disclosure and content in the financial statements and other external financial communications.
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•
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The Compensation Committee oversees the management of risk primarily associated with our ability to attract, motivate and retain quality talent (particularly executive talent) compensation structures that might lead to undue risk taking, and disclosure of our executive compensation philosophies, strategies and activities.
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•
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The Governance and Nominating Committee oversees the management of risk primarily associated with Ambac’s ability to attract and retain quality directors, Ambac’s corporate governance programs and practices and our compliance therewith. Additionally, the Governance and Nominating Committee oversees the processes for evaluation of the performance of the Board of Directors and its committees each year and considers risk management effectiveness as part of its evaluation. The Governance and Nominating Committee also performs oversight of the
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•
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The
Strategy and Risk Policy Committee
oversees the management of risk and risk appetite primarily with respect to strategic plans and initiatives, oversight of Ambac’s capital structure, financing and treasury matters and oversight of management's process for the identification, evaluation and mitigation of Ambac’s financial and commercial-related risks.
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•
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The Asset Liability Management Committee's (“ALCO”) objective is to foster an enterprise wide culture and approach to liquidity management, asset management, asset valuation and hedging. Members of ALCO include the Chief Executive Officer, Chief Financial Officer and senior managers from investment management and the Risk Management Group.
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•
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The Risk Committee's objective is to establish an interdisciplinary team of professionals from different parts of the company to provide oversight of the key risk remediation issues impacting Ambac. The purview of the committee is to review and approve risk remediation activities for the financial guarantee insured portfolio as well as review changes to Ambac Assurance's adversely classified, survey and watch list credits (as defined in
Note 2. Basis of Presentation and Significant Accounting Policies
). Additionally, the Risk Committee will provide oversight and review new risk remediation structures or approaches in connection with risk remediation plans or anticipated transactions. This committee was established in the fourth quarter of 2017. Previously, most risk remediation activities were approved by ALCO. Members of the Risk Committee include the Chief Executive Officer, Head of Risk Management, Chief Financial Officer and senior managers from throughout risk, corporate services, operations, investment management, legal and finance.
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•
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The Disclosure Committee's objective is to assist the CEO and CFO in their responsibilities to design, establish, maintain and evaluate the effectiveness of disclosure controls and procedures.
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2018
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2017
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||||||||||
Investment Category
($ in millions)
December 31,
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Carrying
Value
(2)
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Weighted
Average
Yield
(1)
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Carrying
Value
(2)
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Weighted
Average
Yield
(1)
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||||||
Municipal obligations
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$
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880
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5.6
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%
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$
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780
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5.5
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%
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Corporate securities
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1,278
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5.6
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%
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860
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3.2
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%
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Foreign obligations
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31
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1.1
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%
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27
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1.0
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%
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U.S. government obligations
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94
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1.9
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%
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185
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1.4
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%
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Residential mortgage-backed securities
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259
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10.2
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%
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2,251
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14.1
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%
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Asset-backed securities
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574
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7.9
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%
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649
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7.3
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%
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Total long-term investments
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3,116
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6.2
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%
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4,752
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9.1
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%
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Short-term investments
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430
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2.5
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%
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557
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1.3
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%
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Other investments
(3)
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391
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—
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%
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432
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—
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%
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Total
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$
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3,937
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5.7
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%
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$
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5,741
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8.3
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%
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(1)
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Yields are stated on a pre-tax basis, based on average amortized cost for both long and short term investments.
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(2)
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Includes investments guaranteed by Ambac Assurance and Ambac UK. Refer to
Note 10. Investments
of the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for further discussion of Ambac insured securities held in the investment portfolio.
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(3)
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Other investments include equity interests in pooled investment funds which are classified as trading securities and Ambac's interests in an unconsolidated trust created in connection with its sale of Segregated Account junior surplus notes on August 28, 2014.
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Page
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Risks Related to Ambac Common Shares
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Risks Related to Insured Portfolio Losses
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Risks Related to Indebtedness
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Risks Related to Capital, Liquidity and Markets
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Risks Related to Financial and Credit Markets
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Risks Related to the Company's Business
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Risks Related to International Business
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Risks Related to Taxation
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Risks Related to Strategic Plan
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•
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adverse developments in our financial condition or results of operations;
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•
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changes in the actual or perceived risk within our insured portfolio, particularly with regards to concentrations of credit risk, such as in Puerto Rico;
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•
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actual or perceived adverse developments with regards to Ambac Assurance's RMBS litigations;
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•
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changes to regulatory status;
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•
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changes in investors’ or analysts’ valuation measures for our stock;
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•
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market trends unrelated to our stock;
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•
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market and industry perception of our success, or lack thereof, in pursuing our business strategy;
and
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•
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results and actions of other participants in our industry.
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•
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increase our vulnerability to general adverse economic, competitive and industry conditions;
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•
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limit our ability to obtain additional financing in the future for working capital, capital expenditures, payment of policyholder claims, debt service requirements, acquisitions, general corporate purposes or other purposes on satisfactory terms or at all;
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•
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require us to dedicate a substantial portion of our cash flow from operations to the payment of our indebtedness, thereby reducing the funds available to us for operations and to fund the execution of our key strategies;
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•
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limit or restrict us from making strategic acquisitions or cause us to make non-strategic divestitures;
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•
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limit our ability or increase the costs to refinance indebtedness or repay such indebtedness due to ongoing interest accretion;
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•
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limit our ability to attract and retain key em
ployees; and
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•
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limit our ability to enter into hedging transactions by reducing the number of counterparties with whom we can enter into such transactions, as well as the volume of those transactions.
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•
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Ambac Assurance was insolvent or rendered insolvent by reason of the issuance of the Ambac Note;
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•
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the issuance of the Ambac Note left Ambac Assurance with an unreasonably small amount of capital or assets to carry on its business; or
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•
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Ambac Assurance intended to, or believed that it would, incur debts beyond its ability to pay as they mature.
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•
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the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;
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•
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the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or
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•
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it could not pay its debts as they became due.
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•
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Internal Fraud - misappropriation of assets, intentional mismarking of positions
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•
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External Fraud - theft of information, third-party theft and forgery
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•
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Clients, Products, & Business Practice - improper trade, fiduciary breaches
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•
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Damage to Physical Assets
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•
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Business Disruption & System Failures - software failures, hardware failures; and
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•
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Execution, Delivery, & Process Management - data entry errors, accounting errors, failed mandatory reporting, settlement errors, and negligence.
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Item 1B.
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Unresolved Staff Comments
— No matters require disclosure.
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Item 5.
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Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
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October 2018
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November 2018
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December 2018
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Fourth Quarter 2018
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||||||
Total Shares Purchased
(1)
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2,067
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—
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—
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2,067
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Average Price Paid Per Share
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$
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20.42
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—
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—
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$
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20.42
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Total Number of Shares Purchased as Part of Publicly Announced Plan
(1)
|
—
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—
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—
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—
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Maximum Number of Shares That may Yet be Purchased Under the Plan
|
—
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|
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—
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—
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—
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(1)
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There were no other repurchases of equity securities made during the
three months ended December 31, 2018
. Ambac does not have a stock repurchase program.
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December 31,
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||||||||||
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5/1/13
|
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2013
|
|
2014
|
|
2015
|
|
2016
|
|
2017
|
|
2018
|
Ambac Financial Group, Inc.
|
|
$100
|
|
$123
|
|
$123
|
|
$70
|
|
$113
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$80
|
|
$86
|
Russell 2000 Index
|
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$100
|
|
$127
|
|
$134
|
|
$127
|
|
$148
|
|
$167
|
|
$147
|
S&P Completion Index
|
|
$100
|
|
$123
|
|
$130
|
|
$124
|
|
$142
|
|
$165
|
|
$147
|
|
|
Year Ended December 31,
|
||||||||||||||||||
($ in millions, except per share data)
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
||||||||||
Total Comprehensive Income Highlights:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Gross premiums written
|
|
$
|
(23.8
|
)
|
|
$
|
(14.3
|
)
|
|
$
|
(53.8
|
)
|
|
$
|
(37.6
|
)
|
|
$
|
(288.3
|
)
|
Net premiums earned
|
|
111.1
|
|
|
175.3
|
|
|
197.3
|
|
|
312.6
|
|
|
246.4
|
|
|||||
Net investment income
(2)
|
|
272.7
|
|
|
361.0
|
|
|
313.4
|
|
|
266.3
|
|
|
300.9
|
|
|||||
Other than temporary impairment losses
|
|
(3.2
|
)
|
|
(20.2
|
)
|
|
(21.8
|
)
|
|
(25.7
|
)
|
|
(25.8
|
)
|
|||||
Net realized investment gains
|
|
111.6
|
|
|
5.4
|
|
|
39.3
|
|
|
53.5
|
|
|
58.8
|
|
|||||
Net gains (losses) on derivative contracts
|
|
7.0
|
|
|
75.9
|
|
|
(30.2
|
)
|
|
(0.8
|
)
|
|
(157.2
|
)
|
|||||
Net realized (losses) gains on extinguishment of debt
(2)
|
|
3.1
|
|
|
4.9
|
|
|
4.8
|
|
|
0.1
|
|
|
(74.7
|
)
|
|||||
Income (loss) on Variable Interest Entities ("VIEs")
|
|
3.4
|
|
|
19.7
|
|
|
(14.1
|
)
|
|
31.6
|
|
|
(32.2
|
)
|
|||||
Loss and loss expenses (benefit)
(1) (2)
|
|
(223.6
|
)
|
|
513.2
|
|
|
(11.5
|
)
|
|
(768.7
|
)
|
|
(545.6
|
)
|
|||||
Operating expenses
(2)
|
|
112.2
|
|
|
122.4
|
|
|
114.3
|
|
|
102.7
|
|
|
101.5
|
|
|||||
Interest expense
(2)
|
|
242.3
|
|
|
119.9
|
|
|
124.3
|
|
|
116.5
|
|
|
127.5
|
|
|||||
Insurance intangible amortization
|
|
107.3
|
|
|
150.9
|
|
|
174.6
|
|
|
169.6
|
|
|
151.8
|
|
|||||
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
514.5
|
|
|
—
|
|
|||||
Pre-tax income (loss)
|
|
272.5
|
|
|
(284.3
|
)
|
|
105.0
|
|
|
510.1
|
|
|
493.3
|
|
|||||
Net income (loss)
|
|
267.4
|
|
|
(328.7
|
)
|
|
74.3
|
|
|
492.7
|
|
|
483.7
|
|
|||||
Net income (loss) attributable to Common Shareholders
|
|
185.7
|
|
|
(328.7
|
)
|
|
74.8
|
|
|
493.4
|
|
|
484.1
|
|
|||||
Total comprehensive income attributable to Ambac Financial Group, Inc.
|
|
192.1
|
|
|
(335.4
|
)
|
|
20.6
|
|
|
288.3
|
|
|
692.7
|
|
|||||
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
|
$
|
4.07
|
|
|
$
|
(7.25
|
)
|
|
$
|
1.66
|
|
|
$
|
10.92
|
|
|
$
|
10.73
|
|
Diluted
|
|
$
|
3.99
|
|
|
$
|
(7.25
|
)
|
|
$
|
1.64
|
|
|
$
|
10.72
|
|
|
$
|
10.31
|
|
(1)
|
Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties within losses and loss expenses (benefit). The expense (benefit) associated with changes to our estimated recoveries for the years ended
December 31, 2018
,
2017
,
2016
,
2015
and
2014
were
$62.5 million
,
$72.0 million
,
$(71.4) million
,
$(303.6) million
, and
$(481.7) million
, respectively.
|
(2)
|
On February 12, 2018, Ambac Assurance executed the Rehabilitation Exit Transactions. These transactions directly resulted in: (i) a Loss and loss expense benefit of $288 million; (ii) operating expenses of $17 million and (iii) realized gains on extinguishment of debt of $3 million. Additionally, changes to the investment portfolio and to the composition of long-term debt arising from the transactions significantly impacted net investment income and interest expense for 2018 compared to prior years. Refer to Results of Operations included in Item 7 of this Form 10-K for a further discussion of the Rehabilitation Exit Transactions and their impact on financial results in 2018.
|
($ in millions) December 31
|
2018
|
|
2017
|
|
2016
|
|
2015
|
|
2014
|
||||||||||
Balance Sheet Highlights:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total non-variable interest entity investments
|
$
|
3,937.2
|
|
|
$
|
5,740.8
|
|
|
$
|
6,500.2
|
|
|
$
|
5,644.7
|
|
|
$
|
5,507.0
|
|
Cash and cash equivalents
|
63.1
|
|
|
623.7
|
|
|
91.0
|
|
|
35.7
|
|
|
73.9
|
|
|||||
Premium receivable
|
495.4
|
|
|
586.3
|
|
|
661.3
|
|
|
831.6
|
|
|
1,000.6
|
|
|||||
Insurance intangible asset
|
718.9
|
|
|
847.0
|
|
|
962.1
|
|
|
1,212.1
|
|
|
1,410.9
|
|
|||||
Goodwill
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
514.5
|
|
|||||
Subrogation recoverable
(1)
|
1,933.0
|
|
|
631.2
|
|
|
684.7
|
|
|
1,229.3
|
|
|
953.3
|
|
|||||
Deferred ceded premium
|
61.1
|
|
|
52.2
|
|
|
69.6
|
|
|
96.8
|
|
|
123.3
|
|
|||||
Total VIE assets
|
7,093.3
|
|
|
14,500.5
|
|
|
13,367.8
|
|
|
14,288.5
|
|
|
15,126.1
|
|
|||||
Total assets
|
14,588.7
|
|
|
23,192.4
|
|
|
22,635.7
|
|
|
23,728.1
|
|
|
25,159.9
|
|
|||||
Unearned premiums
|
630.0
|
|
|
783.2
|
|
|
967.3
|
|
|
1,280.3
|
|
|
1,673.8
|
|
|||||
Losses and loss expense reserve
(1)
|
1,826.1
|
|
|
4,745.0
|
|
|
4,380.8
|
|
|
4,088.1
|
|
|
4,752.0
|
|
|||||
Obligations under investment agreements
|
—
|
|
|
—
|
|
|
82.4
|
|
|
100.4
|
|
|
160.1
|
|
|||||
Long-term debt
(2)
|
2,928.9
|
|
|
991.7
|
|
|
1,114.4
|
|
|
1,125.0
|
|
|
971.1
|
|
|||||
Derivative liabilities
|
76.7
|
|
|
82.8
|
|
|
319.3
|
|
|
353.4
|
|
|
406.9
|
|
|||||
Total VIE liabilities
|
6,981.2
|
|
|
14,366.4
|
|
|
13,235.4
|
|
|
14,259.8
|
|
|
15,085.7
|
|
|||||
Total liabilities
|
12,955.6
|
|
|
21,547.1
|
|
|
20,657.7
|
|
|
21,769.7
|
|
|
23,486.1
|
|
|||||
Total stockholders’ equity
|
1,633.1
|
|
|
1,645.3
|
|
|
1,978.0
|
|
|
1,958.3
|
|
|
1,673.7
|
|
|||||
Total liabilities and stockholders' equity
|
$
|
14,588.7
|
|
|
$
|
23,192.4
|
|
|
$
|
22,635.7
|
|
|
$
|
23,728.1
|
|
|
$
|
25,159.9
|
|
(1)
|
Ambac records as a component of its loss reserves and subrogation recoverable, estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties. Ambac has recorded gross estimated recoveries of
$1,770.5 million
,
$1,834.4 million
, $1,907.0 million, $2,829.6 million, and $2,523.5 million at
December 31, 2018
,
2017
,
2016
,
2015
and
2014
, respectively.
|
(2)
|
Long-term debt includes surplus notes issued to third parties by Ambac Assurance, notes outstanding to third parties arising from Ambac Assurance's secured borrowing transaction and the Ambac Note and Tier 2 Notes issued in connection with the Rehabilitation Exit Transactions in 2018. In 2014, Ambac sold a $350.0 million junior surplus note issued to it by the Segregated Account to a newly formed Trust in exchange for cash of $224.3 million and a subordinated owner trust certificate issued by the Trust. Long-term debt for all years excludes the portion of long-term debt associated with variable interest entities.
|
•
|
Working closely with servicers and owners of Master Servicing Rights to exercise clean-up calls on 11 RMBS transactions, reducing adversely classified net par exposure by $284 million;
|
•
|
Proactively working with issuers to expedite refundings or restructurings of Ambac-insured international bonds. During 2018, Ambac negotiated with counterparties that resulted in the termination of several international RMBS and asset-backed policies on £182 million and £548 million of net par exposure, respectively;
|
•
|
Working with issuers and other transaction counterparties to expedite refundings or calls across a number of Ambac domestic public finance bonds, resulting in a reduction of watch list and adversely classified net par of approximately $1.0 billion;
|
•
|
Working with issuers and investors of Ambac-insured debt to commute $484 million of net par exposure, including $127 million of adversely classified student loan exposures; and
|
•
|
Facilitating the refinancing of a defaulted Ambac UK insured debt, reducing adversely classified net par exposure by $36 million;
|
•
|
Sculpting the risk profile of the insured portfolio through quota share reinsurance. This included ceding approximately $138 million of structured finance exposure and the full amount of certain public finance exposures totaling $1.5 billion of performing par exposure (principal and interest of $3.4 billion), which was mostly comprised of policies on non-callable capital appreciation bonds and included $232 million par of watch list and adversely classified credits.
|
•
|
Additional clean-up calls on two RMBS transactions on the watch list with net par outstanding at December 31, 2018 of $48 million;
|
•
|
Worked with the issuer of two watch list asset backed securitizations to expedite the refunding of the bonds with net par outstanding of $95 million at December 31, 2018; and
|
•
|
Worked with an issuer to commute, via a first quarter 2019 refunding, an adversely classified public finance transaction with net par outstanding of $350 million at December 31, 2018.
|
(1)
|
Includes corporate securities and securities insured or issued by Ambac Assurance, including surplus notes (fair value of
$57 million
) and AMPS issued by Ambac Assurance that are eliminated in consolidation.
|
(2)
|
Includes accruals for tolling payments from Ambac Assurance in accordance with the intercompany Tax Sharing Agreement (
$44 million
), investment income due and accrued and other receivables. Tolling payments are subject to review and approval by OCI as summarized below.
|
($ in millions)
|
|
|
||
Net income
(1)
|
|
$
|
(7
|
)
|
Changes in other comprehensive income:
|
|
|
||
Gain (losses) on foreign currency translation
|
|
(48
|
)
|
|
Unrealized gains (losses) on non-functional currency available-for-sale securities
|
|
12
|
|
|
Total changes in other comprehensive income
|
|
(36
|
)
|
|
Impact on total comprehensive income (loss)
|
|
$
|
(43
|
)
|
(1)
|
A portion of Ambac UK's, and to a lesser extent Ambac Assurance's, assets and liabilities are denominated in currencies other than its functional currency and accordingly, we recognized net foreign currency transaction gains/(losses) as a result of changes to foreign currency rates through our Consolidated Statement of Total Comprehensive Income (Loss). Refer to
Note 2. Basis of Presentation and Significant Accounting Policies
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for further details on transaction gains and losses.
|
|
|
2018
|
|
2017
|
||||||||||||
($ in millions) December 31
|
|
Gross Par
Outstanding
(1)(2)
|
|
Gross Loss and Loss Expense
Reserves
(1)(3)(4)
|
|
Gross Par
Outstanding
(1)(2)
|
|
Gross Loss and Loss Expense
Reserves (1)(3)(4)(5) |
||||||||
RMBS
|
|
$
|
3,716
|
|
|
$
|
(1,313
|
)
|
|
$
|
5,243
|
|
|
$
|
2,598
|
|
Domestic Public Finance
|
|
3,987
|
|
|
639
|
|
|
4,265
|
|
|
816
|
|
||||
Student Loans
|
|
530
|
|
|
228
|
|
|
701
|
|
|
308
|
|
||||
Ambac UK and Other Credits
|
|
1,170
|
|
|
273
|
|
|
1,478
|
|
|
303
|
|
||||
Loss expenses
|
|
—
|
|
|
66
|
|
|
—
|
|
|
89
|
|
||||
Totals
|
|
$
|
9,403
|
|
|
$
|
(107
|
)
|
|
$
|
11,687
|
|
|
$
|
4,114
|
|
(1)
|
Ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves are $540 and $23, respectively, at
December 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 and Loss Expense reserves at
December 31, 2018
of
$(107)
are included in the balance sheet in the following line items: Loss and loss expense reserves:
$1,826
and Subrogation recoverable:
$1,933
. Loss and Loss Expense reserves at
December 31, 2017
of
$4,114
are included in the balance sheet in the following line items: Loss and loss expense reserves:
$4,745
and Subrogation recoverable:
$631
.
|
(4)
|
Ambac records as a component of its loss and loss expense reserves, estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties. Ambac has recorded gross estimated recoveries of
$1,771
and
$1,834
at
December 31, 2018 and 2017
, respectively.
|
(5)
|
Included in Gross Loss and Loss Expense Reserves are unpaid claims of
$3,867
at
December 31, 2017
related to policies allocated to the Segregated Account of Ambac Assurance (as defined in
Note 1. Background and Business Description
in the Notes to Consolidated Financial Statements included in this Report on Form 10-K), inclusive of accrued interest payable on Deferred Amounts of
$840
.
|
($ in millions) December 31,
|
2018
|
|
2017
|
||||
Public Finance
(1)(2)
|
$
|
23,442
|
|
|
$
|
32,088
|
|
Structured Finance
|
9,947
|
|
|
13,816
|
|
||
International Finance
|
13,538
|
|
|
16,812
|
|
||
Total net par outstanding
|
$
|
46,927
|
|
|
$
|
62,716
|
|
(1)
|
Includes
$5,759
and
$5,829
of Military Housing net par outstanding at
December 31, 2018 and 2017
, respectively.
|
(2)
|
Includes
$1,880
and
$1,968
of Puerto Rico net par outstanding at
December 31, 2018 and 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.
As discussed below under Puerto Rico, the COFINA POA was confirmed by the United States District Court for the District of Puerto Rico on February 4, 2019 and became effective on February 12, 2019. The POA and certain related commutation transactions resulted in a reduction of Ambac Assurance's insured exposure to COFINA by approximately 75% or $603 to $202.
|
•
|
Ambac insures approximately
$6 billion
net par of privatized military housing debt. The debt was issued to finance the construction and/or renovation of housing units for military personnel and their families on domestic U.S. military bases. Debt service is not directly paid or guaranteed by the U.S. Government. Rather, the bonds are serviced from the cash flow generated in most cases by rental payments deposited by the military directly into lockbox accounts as part of each service personnel’s Basic Allowance for Housing (BAH). In a small number of cases rental payments also come from civilians, including retired service personnel, living on a particular base. Collateral for these transactions includes the BAH payments as well as an interest in the ground lease. Risk factors affecting these transactions include ongoing base essentiality, military deployments, the U.S.
|
($ in millions)
|
|
Range of Maturity
|
|
Ambac
Ratings (1) |
|
Net Par
Outstanding (2) |
|
Net Par and Interest Outstanding
(3)(8)
|
|
Ever-to-Date
Net Claims
Paid
(4)
|
||||||
Exposures Subject to Priority Debt Provision
(5)
|
|
|
|
|
|
|
|
|
|
|
||||||
PR Highways and Transportation Authority (1968 Resolution - Highway Revenue)
(6)
|
|
2021-2027
|
|
BIG
|
|
$
|
4
|
|
|
$
|
10
|
|
|
$
|
23
|
|
PR Highways and Transportation Authority (1998 Resolution - Senior Lien Transportation Revenue)
(6)
|
|
2019-2042
|
|
BIG
|
|
410
|
|
|
704
|
|
|
78
|
|
|||
PR Infrastructure Financing Authority (Special Tax Revenue)
(7)
|
|
2019-2044
|
|
BIG
|
|
403
|
|
|
918
|
|
|
156
|
|
|||
PR Convention Center District Authority (Hotel Occupancy Tax)
|
|
2019-2031
|
|
BIG
|
|
113
|
|
|
165
|
|
|
31
|
|
|||
Total
|
|
|
|
|
|
930
|
|
|
1,797
|
|
|
288
|
|
|||
Exposures Not Subject to Priority Debt Provision
|
|
|
|
|
|
|
|
|
|
|
||||||
Commonwealth of Puerto Rico - General Obligation Bonds
|
|
2019-2023
|
|
BIG
|
|
56
|
|
|
61
|
|
|
7
|
|
|||
PR Public Buildings Authority - Guaranteed by the Commonwealth of Puerto Rico
|
|
2019-2035
|
|
BIG
|
|
89
|
|
|
159
|
|
|
67
|
|
|||
PR Sales Tax Financing Corporation - Senior Sales Tax Revenue (COFINA)
(9)
|
|
2047-2054
|
|
BIG
|
|
805
|
|
|
7,321
|
|
|
—
|
|
|||
Total
|
|
|
|
|
|
950
|
|
|
7,541
|
|
|
74
|
|
|||
Total Net Exposure to The Commonwealth of
Puerto Rico and Related Entities
|
|
|
|
|
|
$
|
1,880
|
|
|
$
|
9,338
|
|
|
$
|
362
|
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac Assurance. In cases where Ambac Assurance has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used. Ambac Assurance credit ratings are subject to revision at any time and do not constitute investment advice. BIG denotes credits deemed below investment grade.
|
(2)
|
Net Par includes capital appreciation bonds, which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds. Accretion of the capital appreciation bonds would increase the related net par by $753 at
December 31, 2018
.
|
(3)
|
Net Par and Interest Outstanding ("P&I") represents the total insured future debt service remaining over the lifetime of the bonds. P&I for capital appreciation bonds does not represent the accreted amount as noted in footnote (2) but rather the amount due at respective maturity dates.
|
(4)
|
In addition to ever-to-date net claims paid, Ambac made net claim payments of $25 during January 2019.
|
(5)
|
Commonly known as "clawback" provision pursuant to Section 8 of Article VI of the Constitution of the Commonwealth of Puerto Rico. Under this provision, in case the available revenues (the Spanish version uses the term “resources”) including surplus for any fiscal year are insufficient to meet the appropriations made for that year, interest on the public debt and amortization thereof shall first be paid, and other disbursements shall thereafter be made in accordance with the order of priorities established by law. These exposures are also subject to Act No. 5-2017, as amended, also known as the Financial Emergency and Fiscal Responsibility Act of 2017, which declares an emergency period that has been subsequently re-extended until June 30, 2019 from its prior December 31, 2018 deadline. Pursuant to Act 5-2017, all executive orders issued under Act No. 21-2016 (as amended, known as the Puerto Rico Emergency Moratorium and Financial Rehabilitation Act), shall continue in full force and effect until amended, rescinded or superseded.
|
(6)
|
Certain Pledged Revenues for Highways and Transportation Revenue Bonds such as Toll Revenues and Investment Earnings are not subject to the Priority Debt Provision.
|
(7)
|
Payable from and secured by proceeds from a federal excise tax imposed on all items produced in Puerto Rico and sold on the mainland of the United States. Currently, rum is the only product from Puerto Rico subject to this federal excise tax.
|
(8)
|
Net Par and Interest Outstanding excludes the effects of a 10% current interest rate on $60 net par of PR Public Building Authority ("PBA") bonds with a maturity date of July 1, 2035, resulting from the absence of a remarketing. Should a remarketing not occur before the maturity of the bonds, the Net Par and Interest Outstanding for PBA exposure would increase by $44.7.
|
(9)
|
As mentioned above, the COFINA POA was confirmed by the United States District Court for the District of Puerto Rico on February 4, 2019 and became effective on February 12, 2019. The POA and certain related commutation transactions resulted in a reduction of Ambac Assurance's insured net par exposure to COFINA by approximately 75% or $603 to $202 (net par and interest reduction of $5,525 to $1,797).
|
($ in millions)
|
|
Bond Type
|
|
Ambac
Ratings
(1)
|
|
Net Par
Outstanding
(2)
|
|
% of Total
Net Par
Outstanding
|
|||
Puerto Rico Sales Tax Financing Corporation - Senior Sales Tax Revenue (COFINA)
(3)
|
|
Lease and Tax-backed Revenue
|
|
BIG
|
|
$
|
805
|
|
|
1.7
|
%
|
New Jersey Transportation Trust Fund Authority - Transportation System
|
|
Lease and Tax-backed Revenue
|
|
BBB+
|
|
783
|
|
|
1.7
|
%
|
|
Massachusetts Commonwealth - GO
|
|
General Obligation
|
|
AA
|
|
586
|
|
|
1.2
|
%
|
|
Mets Queens Baseball Stadium Project, NY, Lease Revenue
|
|
Stadium
|
|
BBB
|
|
557
|
|
|
1.2
|
%
|
|
Hickam Community Housing LLC
|
|
Housing Revenue
|
|
BBB
|
|
469
|
|
|
1.0
|
%
|
|
Bragg Communities, LLC
|
|
Housing Revenue
|
|
A-
|
|
422
|
|
|
0.9
|
%
|
|
Puerto Rico Highways & Transportation Authority, Transportation Revenue
|
|
Lease and Tax-backed Revenue
|
|
BIG
|
|
414
|
|
|
0.9
|
%
|
|
Puerto Rico Infrastructure Financing Authority, Special Tax Revenue
|
|
Lease and Tax-backed Revenue
|
|
BIG
|
|
403
|
|
|
0.9
|
%
|
|
New Jersey Economic Development Authority - School Facilities Construction
|
|
Lease and Tax-backed Revenue
|
|
BBB+
|
|
400
|
|
|
0.9
|
%
|
|
Massachusetts Port Authority Special Facility Revenue Bonds
|
|
Transportation Revenue
|
|
BIG
|
|
350
|
|
|
0.7
|
%
|
|
Total
|
|
|
|
|
|
$
|
5,189
|
|
|
11.1
|
%
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac Assurance. In cases where Ambac Assurance has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used. Ambac Assurance credit ratings are subject to revision at any time and do not constitute investment advice. BIG denotes credits deemed below investment grade.
|
(2)
|
Net Par includes capital appreciation bonds, which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bonds.
|
(3)
|
As mentioned above, the COFINA POA was confirmed by the United States District Court for the District of Puerto Rico on February 4, 2019 and became effective on February 12, 2019. The POA and certain related commutation transactions resulted in a reduction of Ambac Assurance's insured net par exposure to COFINA by approximately 75% or $603 to $202.
|
Servicer
($ in millions)
|
|
Bond Type
|
|
Net Par
Outstanding
|
|
% of Total
Net Par
Outstanding
|
|||
Specialized Loan Servicing, LLC
|
|
Mortgage-backed
|
|
$
|
1,219
|
|
|
2.6
|
%
|
Bank of America N.A.
|
|
Mortgage-backed
|
|
1,188
|
|
|
2.5
|
%
|
|
Wells Fargo Bank
|
|
Mortgage-backed
|
|
828
|
|
|
1.8
|
%
|
|
Ocwen Loan Servicing, LLC
|
|
Mortgage-backed
|
|
808
|
|
|
1.7
|
%
|
|
Pennsylvania Higher Education Assistance Agency
|
|
Student Loan
|
|
793
|
|
|
1.7
|
%
|
($ in millions)
|
|
Bond Type
|
|
Ambac
Rating
(1)
|
|
Net Par
Outstanding
|
|
% of Total
Net Par
Outstanding
|
|||
Ballantyne Re Plc
(2)
|
|
Structured Insurance
|
|
BIG
|
|
$
|
900
|
|
|
1.9
|
%
|
Timberlake Financial, LLC
|
|
Structured Insurance
|
|
BBB
|
|
465
|
|
|
1.0
|
%
|
|
Wachovia Asset Securitization Issuance II, LLC 2007-HE2
|
|
Mortgage Backed Securities
|
|
BBB
|
|
458
|
|
|
1.0
|
%
|
|
Progress Energy Carolinas, Inc.
|
|
Investor Owned Utility
|
|
A-
|
|
450
|
|
|
1.0
|
%
|
|
Wachovia Asset Securitization Issuance II, LLC 2007-HE1
|
|
Mortgage Backed Securities
|
|
BBB
|
|
317
|
|
|
0.7
|
%
|
|
Option One Mortgage Loan Trust 2007-FXD1
|
|
Mortgage Backed Securities
|
|
BIG
|
|
235
|
|
|
0.5
|
%
|
|
Terwin Mortgage Trust Asset-Backed Certificates, Series 2006-6
|
|
Mortgage Backed Securities
|
|
BIG
|
|
214
|
|
|
0.5
|
%
|
|
Impac CMB Trust Series 2005-7
|
|
Mortgage Backed Securities
|
|
BIG
|
|
204
|
|
|
0.4
|
%
|
|
Countrywide Asset-Backed Certificates Trust 2005-16
|
|
Mortgage Backed Securities
|
|
BIG
|
|
198
|
|
|
0.4
|
%
|
|
Ownit Mortgage Trust 2006-OT1
|
|
Mortgage Backed Securities
|
|
BIG
|
|
182
|
|
|
0.4
|
%
|
|
Total
|
|
|
|
|
|
$
|
3,623
|
|
|
7.7
|
%
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac Assurance, and for Ambac UK related transactions, based on the view of Ambac UK. In cases where Ambac Assurance or Ambac UK has insured multiple tranches of an issue with varying internal ratings, or more than one obligation of an issuer with varying internal ratings, a weighted average rating is used. Ambac Assurance and Ambac UK credit ratings are subject to revision at any time and do not constitute investment advice. BIG denotes credits deemed below investment grade.
|
(2)
|
Insurance policy issued by Ambac UK.
|
($ in millions)
|
|
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+
|
|
$
|
1,337
|
|
|
2.8
|
%
|
Capital Hospitals plc
(2)
|
|
UK-Infrastructure
|
|
A-
|
|
871
|
|
|
1.9
|
%
|
|
Aspire Defence Finance plc
|
|
UK-Infrastructure
|
|
BBB+
|
|
855
|
|
|
1.8
|
%
|
|
Anglian Water
|
|
UK-Utility
|
|
A-
|
|
772
|
|
|
1.6
|
%
|
|
Posillipo Finance II S.r.l
|
|
Italy-Sub-Sovereign
|
|
BBB-
|
|
753
|
|
|
1.6
|
%
|
|
National Grid Gas
|
|
UK-Utility
|
|
A-
|
|
713
|
|
|
1.5
|
%
|
|
Ostregion Investmentgesellschaft NR 1 SA
(2)
|
|
Austria-Infrastructure
|
|
BIG
|
|
712
|
|
|
1.5
|
%
|
|
RMPA Services plc
|
|
UK-Infrastructure
|
|
BBB+
|
|
570
|
|
|
1.2
|
%
|
|
Catalyst Healthcare (Manchester) Financing plc
(2)
|
|
UK-Infrastructure
|
|
BBB-
|
|
525
|
|
|
1.1
|
%
|
|
National Grid Gas
|
|
UK-Utility
|
|
A-
|
|
478
|
|
|
1.0
|
%
|
|
Total
|
|
|
|
|
|
$
|
7,586
|
|
|
16.2
|
%
|
(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)
|
A portion of this transaction is insured by an insurance policy issued by Ambac Assurance.
|
Net Par Outstanding Amortization
(1)
($ in millions)
|
|
Estimated Net
Amortization
|
||
2019
|
|
$
|
3,318
|
|
2020
|
|
3,280
|
|
|
2021
|
|
3,202
|
|
|
2022
|
|
3,013
|
|
|
2023
|
|
2,038
|
|
|
|
|
|
||
2019-2023
|
|
$
|
14,851
|
|
2024-2028
|
|
10,001
|
|
|
2029-2033
|
|
7,091
|
|
|
2034-2038
|
|
9,803
|
|
|
After 2038
|
|
5,181
|
|
|
Total
|
|
$
|
46,927
|
|
(1)
|
Depicts amortization of existing guaranteed portfolio, assuming no advance refundings, as of
December 31, 2018
. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay guaranteed obligations.
|
Geographic Area
($ in millions)
|
Net Par
Amount
Outstanding
|
|
% of Total
Net Par Amount
Outstanding
|
|||
Domestic:
|
|
|
|
|||
Mortgage and asset-backed
(1)
|
$
|
5,747
|
|
|
12.2
|
%
|
California
|
3,719
|
|
|
7.9
|
%
|
|
New York
|
2,577
|
|
|
5.5
|
%
|
|
Colorado
|
2,430
|
|
|
5.2
|
%
|
|
New Jersey
|
2,051
|
|
|
4.4
|
%
|
|
Puerto Rico
(2)
|
1,880
|
|
|
4.0
|
%
|
|
Texas
|
1,543
|
|
|
3.3
|
%
|
|
Illinois
|
1,174
|
|
|
2.5
|
%
|
|
Florida
|
1,161
|
|
|
2.5
|
%
|
|
Pennsylvania
|
1,157
|
|
|
2.5
|
%
|
|
Massachusetts
|
1,132
|
|
|
2.4
|
%
|
|
Other domestic
|
8,818
|
|
|
18.8
|
%
|
|
Total Domestic
|
33,389
|
|
|
71.2
|
%
|
|
International:
|
|
|
|
|||
United Kingdom
|
10,965
|
|
|
23.4
|
%
|
|
Italy
|
811
|
|
|
1.7
|
%
|
|
Austria
|
712
|
|
|
1.5
|
%
|
|
Australia
|
384
|
|
|
0.8
|
%
|
|
France
|
312
|
|
|
0.7
|
%
|
|
Internationally diversified
(3)
|
213
|
|
|
0.5
|
%
|
|
Other international
|
141
|
|
|
0.3
|
%
|
|
Total International Finance
|
13,538
|
|
|
28.8
|
%
|
|
Total
|
$
|
46,927
|
|
|
100.0
|
%
|
(1)
|
Mortgage and asset-backed obligations includes guarantees with multiple locations of risk within the United States and is primarily comprised of residential mortgage and commercial asset-backed securitizations.
|
(2)
|
As mentioned above, the COFINA POA was confirmed by the United States District Court for the District of Puerto Rico on February 4, 2019 and became effective on February 12, 2019. The POA and certain related commutation transactions resulted in a reduction of Ambac Assurance's insured net par exposure to COFINA by 75% or $603 to $202.
|
(3)
|
Internationally diversified may include components of U.S. exposure.
|
Currency
($ in millions)
|
Net Par
Amount
Outstanding
in Base
Currency
|
|
Net Par
Amount
Outstanding
in U.S.
Dollars
|
|
Percentage of Net Par Amount Outstanding
|
|||||
U.S. Dollars
|
$
|
34,024
|
|
|
$
|
34,024
|
|
|
72.5
|
%
|
British Pounds
|
£
|
8,387
|
|
|
10,695
|
|
|
22.8
|
%
|
|
Euros
|
€
|
1,592
|
|
|
1,824
|
|
|
3.9
|
%
|
|
Australian Dollars
|
A$
|
545
|
|
|
384
|
|
|
0.8
|
%
|
|
Total
|
|
|
$
|
46,927
|
|
|
100.0
|
%
|
(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 Assurance and Ambac UK credit ratings are subject to revision at any time and do not constitute investment advice.
|
|
Net Par Outstanding - December 31,
|
||||||
Bond Type ($ in millions)
|
2018
|
|
2017
|
||||
Public Finance:
|
|
|
|
||||
Lease and tax-backed
(1)
|
$
|
2,025
|
|
|
$
|
2,144
|
|
General obligation
(1)
|
434
|
|
|
491
|
|
||
Transportation
|
378
|
|
|
397
|
|
||
Housing
(2)
|
314
|
|
|
317
|
|
||
Health care
|
25
|
|
|
24
|
|
||
Other
|
146
|
|
|
189
|
|
||
Total Public Finance
|
3,322
|
|
|
3,562
|
|
||
Structured Finance:
|
|
|
|
||||
RMBS
|
4,205
|
|
|
6,916
|
|
||
Structured Insurance
|
900
|
|
|
900
|
|
||
Student loans
|
714
|
|
|
922
|
|
||
Other
|
53
|
|
|
9
|
|
||
Total Structured Finance
|
5,872
|
|
|
8,747
|
|
||
International Finance:
|
|
|
|
||||
Other
|
924
|
|
|
1,200
|
|
||
Total International Finance
|
924
|
|
|
1,200
|
|
||
Total
|
$
|
10,118
|
|
|
$
|
13,509
|
|
(1)
|
Tax-backed includes
$1,735
and
$1,802
of Puerto Rico net par at
December 31, 2018 and 2017
, respectively. General obligation includes
$145
and
$166
of Puerto Rico net par at
December 31, 2018 and 2017
, respectively. Puerto Rico net par outstanding includes capital appreciation bonds which are reported at the par amount at
|
(2)
|
Includes
$314
and
$317
of military housing net par at
December 31, 2018 and 2017
, respectively.
|
Bond Type ($ in millions)
|
Ceded Par
Amount
Outstanding
|
|
% of Gross
Par Ceded
|
|||
Public Finance:
|
|
|
|
|||
General obligation
|
$
|
1,402
|
|
|
25
|
%
|
Lease and tax-backed revenue
|
961
|
|
|
11
|
%
|
|
Housing revenue
|
958
|
|
|
13
|
%
|
|
Higher education
|
228
|
|
|
16
|
%
|
|
Utility revenue
|
210
|
|
|
15
|
%
|
|
Transportation revenue
|
208
|
|
|
11
|
%
|
|
Health care revenue
|
13
|
|
|
3
|
%
|
|
Other
|
104
|
|
|
12
|
%
|
|
Total Public Finance
|
4,084
|
|
|
15
|
%
|
|
Structured Finance:
|
|
|
|
|||
Student loan
|
357
|
|
|
28
|
%
|
|
Investor-owned utilities
|
226
|
|
|
11
|
%
|
|
Asset-backed
|
167
|
|
|
41
|
%
|
|
Mortgage-backed and home equity
|
63
|
|
|
1
|
%
|
|
Other
|
172
|
|
|
11
|
%
|
|
Total Structured Finance
|
985
|
|
|
9
|
%
|
|
Total Domestic
|
5,069
|
|
|
13
|
%
|
|
International Finance:
|
|
|
|
|||
Investor-owned and public utilities
|
24
|
|
|
1
|
%
|
|
Transportation
|
22
|
|
|
1
|
%
|
|
Asset-backed
|
12
|
|
|
1
|
%
|
|
Total International Finance
|
58
|
|
|
1
|
%
|
|
Total
|
$
|
5,127
|
|
|
10
|
%
|
(1)
|
In connection with the AMPS Exchange, the difference between the fair value of consideration provided to AMPS holders and the carrying amount of the AMPS has been reflected as a reduction to Net income attributable to common stockholders in the third quarter of 2018 for approximately
$82
. Refer to
Note 1. Background and Business Description
for a discussion of the AMPS Exchange.
|
(2)
|
Includes Net gain (losses) on the extinguishment of debt and other income (expense).
|
•
|
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
|
•
|
Exchanges were consummated pursuant to which holders of surplus notes received the same effective package as holders of beneficial interests in Deferred Amounts, including a discount of $0.065 for 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 $809.5 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 remained 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 was less than 10%, debt modification accounting was appropriate. Under debt modification accounting, no gain or loss was recorded, and a new effective interest rate was established based on the cash flows of the Ambac Note, which secures the Secured Notes issued.
|
•
|
Ambac Assurance issued $240 million of new debt secured by certain of Ambac Assurance’s rights to RMBS R&W subrogation recoveries above $1.6 billion ("Tier 2 Notes"). The proceeds received from this issuance were used to help fund the cash portion of the consideration paid pursuant to the Second Amended Plan of Rehabilitation and exchanges noted above. Refer to
Note 13. Long-term Debt
to the Consolidated Financial Statements, included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2018
.
|
•
|
Ambac incurred operating expenses for the year ended December 31, 2018, including for AAC and OCI financial advisors, of approximately $17 million.
|
•
|
The runoff of the insured portfolio occurring through transaction terminations, calls and scheduled maturities, which had a negative impact.
|
•
|
Pre-refundings of insured securities, primarily Public Finance transactions. Since the maturity date of pre-refunded securities is shortened (to a specified call date from its previous legal maturity), normal net premiums earned will increase over the remaining period of the related policy.
|
•
|
New ceded reinsurance of insurance risk which reduces normal net premiums earned over the remaining period of the related policies.
|
•
|
The strengthening or weakening of the U.S. dollar relative to the British Pound since Ambac's wholly-owned UK subsidiary, Ambac UK, operates in the United Kingdom and the British Pound is its functional currency.
|
2018
|
|
2017
|
|
2016
|
|||||||
Securities available-for-sale: Ambac-insured (including Secured Notes)
|
$
|
220
|
|
|
$
|
262
|
|
|
$
|
195
|
|
Securities available-for-sale and short-term other than Ambac-insured
|
51
|
|
|
76
|
|
|
86
|
|
|||
Other investments (includes trading securities)
|
2
|
|
|
23
|
|
|
32
|
|
|||
Net investment income
|
$
|
273
|
|
|
$
|
361
|
|
|
$
|
313
|
|
•
|
Net gains
on interest rate derivatives for the year ended
December 31, 2018
were
$7 million
, compared to the net gain of
$60 million
for the year ended
December 31, 2017
. While interest rates rose in both 2018 and 2017, overall gains for 2018 were lower as a result of $42 million of gains realized in 2017 on certain swaps commuted with a structured finance vehicle, higher carrying costs in 2018 and an increase in counterparty credit adjustments on certain uncollateralized derivative assets compared to decreases in 2017.
|
•
|
The interest rate derivatives loss for 2016 was primarily driven by the impact of lower credit spreads that reduced the Ambac CVA on derivative liabilities and the carrying cost of the portfolio. Despite substantial interest rate movements within 2016, the overall change in rates from the beginning to the end of the year did not have a significant impact on full year results.
|
•
|
Income on variable interest entities for the
year ended December 31, 2018
included gains on deconsolidation of VIEs as a result of financial guarantee policy terminations and discount accretion on remaining VIE net assets.
|
•
|
Income on variable interest entities for the
year ended December 31, 2017
is due primarily to a higher net asset value of a VIE related to an increase in projected financial guarantee insurance premiums.
|
•
|
Loss on variable interest entities for the year ended
December 31, 2016
reflected a decrease in the fair value of net assets primarily due to the decrease in the CVA applied to certain VIE note liabilities that included significant projected financial guarantee claims. Other than those transactions involving significant projected financial guarantee claims, the fair value of VIE net assets increased producing net gains in 2016.
|
($ in millions)
Year Ended December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
RMBS
(1)
|
$
|
(8
|
)
|
|
$
|
(41
|
)
|
|
$
|
(299
|
)
|
Domestic Public Finance
|
37
|
|
|
476
|
|
|
169
|
|
|||
Student Loans
|
(4
|
)
|
|
25
|
|
|
(112
|
)
|
|||
Ambac UK and Other Credits
|
19
|
|
|
(125
|
)
|
|
60
|
|
|||
Interest on Deferred Amounts
|
21
|
|
|
178
|
|
|
171
|
|
|||
Discount on Rehabilitation Exit Transaction
|
$
|
(288
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
Totals
(2)
|
$
|
(224
|
)
|
|
$
|
513
|
|
|
$
|
(12
|
)
|
(1)
|
The loss and loss expense (benefit) associated with changes in estimated representation and warranties for the year ended
December 31, 2018, 2017 and 2016
was $62 million, $72 million, and $(71) million, respectively.
|
(2)
|
Includes loss expenses incurred of $92 million, $82 million and $52 million for the year ended
December 31, 2018, 2017 and 2016
, respectively.
|
•
|
Discount achieved pursuant to the Rehabilitation Exit Transactions, partially offset by interest on Deferred Amounts through the Rehabilitation Exit Transactions effective date;
|
•
|
Higher projected losses in domestic public finance largely driven by Military Housing loss expenses incurred and adverse development on a certain general obligation and transportation risks;
|
•
|
Favorable RMBS credit development, partially offset by a decrease in RMBS R&W subrogation recoveries, and loss expenses incurred;
|
•
|
$15 million of foreign exchange losses related to Ambac UK loss reserves denominated in currencies other than its functional currency of British Pounds, resulting in incurred losses (gains) when the British Pound depreciates (appreciates).
|
•
|
Higher projected losses in domestic public finance largely driven by adverse development on Puerto Rico and the Military Housing sector;
|
•
|
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 against JPMIM and from activities executed by the Ballantyne trust that indirectly reduced future expected claims on the Ambac insured notes;
|
•
|
$30 million of foreign exchange gains related to Ambac UK loss reserves denominated in currencies other than its functional currency of British Pounds resulting in incurred losses (gains) when the British Pound depreciates (appreciates);
|
•
|
A $50 million benefit due to reimbursements of claims paid with respect to two transactions that benefited from a mortgage insurance settlement.
|
•
|
Lower projected losses in the RMBS portfolio due to improved deal performance, higher RMBS R&W subrogation recoveries and a settlement of a non-representation and warranty dispute with regards to an Ambac insured RMBS transaction;
|
•
|
The positive impact of executed commutations and an improved outlook with regards to our risk remediation efforts on student loan policies;
|
•
|
Higher projected losses in domestic public finance largely driven by adverse development in Puerto Rico;
|
•
|
Interest on Deferred Amounts;
|
•
|
Increased projected losses in the Ambac UK portfolio primarily due to foreign exchange losses of $78 million partially offset by lower interest rates.
|
(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 includes claims paid on Puerto Rico policies of $157, $143 and $63 for the years ended
December 31, 2018, 2017 and 2016
, respectively.
|
(3)
|
Subrogation received declined due to the continuous runoff of the RMBS insured portfolio and the impact of higher interest rates on excess spread.
|
(4)
|
Subrogation received for the year ended December 31, 2017 includes $50 ($50 gross of reinsurance) related to a reimbursement of claims due to a mortgage insurance settlement. Subrogation received for the year ended December 31, 2016 includes $993 ($995 gross of reinsurance) received from the settlement of representation and warranty related litigation with JP Morgan and $99 ($100 gross of reinsurance) related to the Countrywide Investor Settlement.
|
($ in millions)
Year Ended December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Compensation
|
$
|
55
|
|
|
$
|
54
|
|
|
$
|
61
|
|
Non-compensation
|
$
|
56
|
|
|
$
|
68
|
|
|
$
|
52
|
|
Gross operating expenses
(1)
|
$
|
111
|
|
|
$
|
122
|
|
|
$
|
113
|
|
Reinsurance commissions, net
|
1
|
|
|
—
|
|
|
2
|
|
|||
Total operating expenses
|
$
|
112
|
|
|
$
|
122
|
|
|
$
|
114
|
|
(1)
|
Includes expenses related to Rehabilitation Exit Transactions of $10, $25, and $3 for the years ended
December 31, 2018, 2017 and 2016
, respectively, and expenses related to the AMPS Exchange of $8, $0 and $0 for the years ended
December 31, 2018, 2017 and 2016
, respectively.
|
•
|
Lower non-compensation costs primarily due to a $21 million reduction in legal, consulting and advisory costs related to the exit from rehabilitation of the Segregated Account, of which $5 million relates to advisory services provided for the benefit of OCI, partially offset by costs of $8 million associated with the August 2018 AMPS Exchange.
|
•
|
Slightly higher compensation costs related to higher incentive compensation costs driven by (i) an improvement in performance metrics; (ii) granting of incentive awards related to the Rehabilitation Exit Transactions; (iii) the timing of recognition of equity based compensation in lieu of cash bonuses; and (iv) amounts related to the settlement of a previously granted performance based restricted stock unit award issued to the former CEO that vested upon the Segregated Account's exit from rehabilitation; partially offset by lower salaries and post employment costs, including severance as a result of reduced headcount.
|
•
|
Higher non-compensation costs primarily due to (i) $22 million incremental legal, consulting and advisory costs related to the Rehabilitation Exit Transactions, (ii) $5 million incremental OCI legal and consulting costs primarily in connection with the Rehabilitation Exit Transactions, and (iii) $4 million increase in state taxes primarily due to a $2 million reduction of accrued state income taxes in 2016 due to the final resolution of state insurance tax assessments. These increased costs were partially offset by (i) a reduction in litigation contingencies of $8 million and (ii) a reduction in costs associated with stockholder activism of $6 million in 2016.
|
•
|
Lower compensation costs related to salaries, post employment costs, including severance, partially offset by increased long term incentive compensation costs due to an improvement in performance factors. Although post-employment costs have decreased from 2016, the Company reduced headcount in 2017 resulting in severance charges.
|
(1)
|
The amounts include unfunded commitment fees applicable prior to the issuance of the Tier 2 notes of $1 million, $2 million and $0 million, respectively, for the years ended
December 31, 2018, 2017 and 2016
.
|
|
Payments Due by Period
|
||||||||||||||||||
($ in millions)
|
Total
|
|
Less Than 1 Year
|
|
1 - 3 Years
|
|
3 - 5 Years
|
|
More Than 5 Years
|
||||||||||
Surplus note obligations
(1)
|
$
|
3,827
|
|
|
$
|
279
|
|
|
$
|
558
|
|
|
$
|
—
|
|
|
$
|
2,990
|
|
Ambac note obligations
(2)
|
2,563
|
|
|
151
|
|
|
303
|
|
|
2,109
|
|
|
—
|
|
|||||
Tier 2 note obligations
(3)
|
5,394
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,394
|
|
|||||
Operating lease obligations
(4)
|
23
|
|
|
6
|
|
|
4
|
|
|
3
|
|
|
10
|
|
|||||
Purchase obligations
(5)
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Postretirement benefits
(6)
|
4
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
2
|
|
|||||
Loss and loss expenses
(7)
|
3,448
|
|
|
309
|
|
|
201
|
|
|
160
|
|
|
2,778
|
|
|||||
Income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
15,262
|
|
|
$
|
748
|
|
|
$
|
1,066
|
|
|
$
|
2,273
|
|
|
$
|
11,174
|
|
(1)
|
Amounts on surplus notes (excluding junior surplus notes) include principal on their scheduled maturity date and interest on scheduled payment date, including payment of previously deferred interest totaling $239 million on the next scheduled payment date of June 7, 2019. Also includes all principal and interest on junior surplus notes on the date all future and existing senior indebtedness of Ambac Assurance, policy and other priority claims against Ambac Assurance have been paid in full (included in the more than 5 years column). All payments of principal and interest on surplus notes are subject to the prior approval of the OCI. If the OCI does not approve the payment of interest on the surplus notes, such interest will accrue and compound annually until paid. Except for a one-time payment of approximately six months of interest on the surplus notes (other than junior surplus notes) outstanding immediately after the Rehabilitation Exit Transactions, annually from 2011 through 2018, OCI disapproved scheduled interest payments.
|
(2)
|
Includes principal on Ambac note as of
December 31, 2018
to be paid on its legal maturity date of February 12, 2023, and scheduled interest payments. Interest amounts on this variable rate debt are projected at a rate of 7.80% which is based on the index rate in effect at the balance sheet date. These notes are subject to mandatory redemption provisions that could significantly accelerate the timing of required payments, as described further in Note 13. Long-Term Debt
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K.
|
(3)
|
Includes principal and compounded paid-in-kind interest on Tier 2 notes to be paid on their legal maturity date of February 12, 2055. These notes are subject to mandatory redemption provisions that could significantly accelerate the timing of required payments, as described further in Note 13. Long-Term Debt
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K.
|
(4)
|
Amount represents future lease payments on lease agreements existing as of
December 31, 2018
. In January 2019 Ambac entered into a sub-lease agreement for office space at One World Trade Center, New York, NY set to expire in January 2030 which includes future lease payments of approximately $27 million.
|
(5)
|
Purchase obligations represent future expenditures for contractually scheduled fixed terms and amounts due for various technology-related maintenance agreements and other outside services.
|
(6)
|
Amount represents future payments relating to Ambac Assurance's postretirement medical reimbursements to current retirees over the next 10 years.
|
(7)
|
The timing of expected claim payments is based on deal specific cash flows, excluding expected recoveries. These deal specific cash flows are based on the expected cash flows of the underlying transactions (e.g. for RMBS credits we model estimated future claim payments). The timing of expected claim payments for credits with reserves that were established using our statistical loss reserve method is determined based on the weighted average expected life of the exposure. Refer to the Loss Reserves section in
Note 2. Basis of Presentation and Significant Accounting Policies
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for further discussion of our statistical loss reserve method. The timing of these payments may vary significantly from the amounts shown above, especially for credits that are based on our statistical loss reserve method.
|
•
|
Cash outflow from the Rehabilitation Exit Transactions to third parties was $1,354 million of which $1,162 million is included in operating activities and $191 is included in financing activities as it related to payments for surplus note principal. See
Note 1. Background and Business Description
to the Consolidated Financial Statements, included in Part II, Item 8 in this Form 10-K for details regarding the Rehabilitation Exit Transactions;
|
•
|
During the
year ended December 31, 2018
, Ambac made payment of interest on long-term debt of
$143 million
, including
$11 million
on surplus notes made in connection with the Rehabilitation Exit Transactions,
$130 million
on the Ambac Note and
$2 million
on the secured borrowing which was fully repaid in June 2018;
|
•
|
During the
year ended December 31, 2017
, Ambac made payments of $94 million to commute interest rate swaps with a special purpose entity;
|
•
|
During the year ended
December 31, 2017
, Ambac made payments of $105 million to extinguish (on a consolidated basis) principal and interest of surplus notes and settled certain residual obligations related to previously called surplus notes ($69 million principal and $35 million interest). The interest amount reduces operating cash flows and the principal reduced financing cash flows; and
|
•
|
Net loss and loss expenses paid, including commutation payments, during the years ended
December 31, 2018, 2017 and 2016
are detailed below:
|
($ in million)
Year Ended
December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Net losses paid
(1)
|
$
|
344
|
|
|
$
|
311
|
|
|
$
|
365
|
|
Net subrogation received
|
(140
|
)
|
|
(244
|
)
|
|
(1,355
|
)
|
|||
Net loss expenses paid
|
117
|
|
|
67
|
|
|
50
|
|
|||
Net cash flow
|
$
|
321
|
|
|
$
|
134
|
|
|
$
|
(940
|
)
|
(1)
|
Net losses paid includes claims paid on Puerto Rico policies of $157, $143 and $63 million for the year ended
December 31, 2018, 2017 and 2016
, respectively.
|
•
|
During the year ended
December 31, 2018, 2017 and 2016
tax payments amounted to
$35 million
,
$40 million
and
$21 million
respectively.
|
•
|
Invested assets and cash were reduced by a total of $1,801 million driven by (i) a cash outflow of $1,354 million and (ii) the 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 ($3,857 million at February 12, 2018). Loss Reserves included $3,080 million of unpaid claims and accrued interest at December 31, 2017. Subrogation Recoverable was net of $787 million of unpaid claims and accrued interest 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
|
•
|
Long-term debt was increased by $1,748 million driven by (i) the Ambac Note issued to Ambac LSNI with an initial carrying value of approximately $2,146 million and (ii) the issuance of Tier 2 Notes with an initial carrying value of approximately $231 million, partially offset by the consolidated reduction of surplus notes principal and interest with a carrying value of approximately $629 million. Refer to
Note 13. Long-term Debt
t
o the Consolidated Financial Statements, included in Part II, Item 8 in this Form 10-K for further information regarding Ambac's debt obligations.
|
($ in millions)
December 31,
|
2018
|
|
2017
|
||||
Fixed income securities
|
$
|
3,116
|
|
|
$
|
4,652
|
|
Short-term
|
430
|
|
|
557
|
|
||
Other investments
|
391
|
|
|
432
|
|
||
Fixed income securities pledged as collateral
|
—
|
|
|
100
|
|
||
Total investments
(1)
|
$
|
3,937
|
|
|
$
|
5,741
|
|
(1)
|
Includes investments denominated in non-US dollar currencies with a fair value of
£204
(
$259
) and
€14
(
$16
) as of
December 31, 2018
and
£210
(
$284
) and
€41
(
$49
) as of
December 31, 2017
.
|
(1)
|
Includes investments guaranteed by Ambac Assurance and Ambac UK for both years presented. Refer to
Note 10. Investments
in this 10-K located in Part II. Item 8 for further details of Ambac-insured securities held in the investment portfolio.
|
(1)
|
Ratings are based on the lower of Moody’s or S&P ratings. If ratings are unavailable from Moody's or S&P, Fitch ratings are used. If guaranteed, rating represents the higher of the underlying or guarantor’s financial strength rating.
|
(2)
|
Below investment grade and not rated bonds insured by Ambac represent
57%
and
64%
of the
2018
and
2017
combined portfolio, respectively. The decrease in the percentage of not rated and below investment grade holdings since
December 31, 2017
is driven by reductions in Ambac-insured RMBS resulting from the Rehabilitation Exit Transactions and subsequent sales, partially offset by the receipt of Secured Notes issued by Ambac LSNI.
|
Currency
(Amounts in millions)
|
|
Premium Receivable in Payment Currency
|
|
Premium Receivable in U.S. dollars
|
||||
U.S. Dollars
|
|
$
|
333
|
|
|
$
|
333
|
|
British Pounds
|
|
£
|
103
|
|
|
131
|
|
|
Euros
|
|
€
|
27
|
|
|
31
|
|
|
Australian Dollars
|
|
A$
|
1
|
|
|
—
|
|
|
Total
|
|
|
|
$
|
495
|
|
|
Unpaid Claims
|
|
Present Value of Expected
Net Cash Flows |
|
Unearned
Premium Revenue |
|
Gross Loss
and Loss Expense Reserves |
||||||||||||||||
($ in millions)
Balance Sheet Line Item |
Claims
|
|
Accrued Interest
|
|
Claims and
Loss Expenses |
|
Recoveries
(1)
|
|
|||||||||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss and loss expense reserves
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,246
|
|
|
$
|
(313
|
)
|
|
$
|
(107
|
)
|
|
$
|
1,826
|
|
Subrogation recoverable
|
—
|
|
|
—
|
|
|
176
|
|
|
(2,109
|
)
|
|
—
|
|
|
(1,933
|
)
|
||||||
Totals
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,422
|
|
|
$
|
(2,422
|
)
|
|
$
|
(107
|
)
|
|
$
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
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
$1,771
and
$1,834
at
December 31, 2018 and 2017
, respectively.
|
|
|
|
Unpaid Claims
|
|
Present Value of Expected
Net Cash Flows |
|
Unearned
Premium Revenue |
|
Gross Loss
and Loss Expense Reserves (1)(3) |
||||||||||||||||||
($ in millions)
|
Gross Par
Outstanding (1)(2) |
|
Claims
|
|
Accrued
Interest |
|
Claims and
Loss Expenses |
|
Recoveries
|
|
|||||||||||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
RMBS
|
$
|
3,716
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
696
|
|
|
$
|
(1,995
|
)
|
|
$
|
(14
|
)
|
|
$
|
(1,313
|
)
|
Domestic Public Finance
|
3,987
|
|
|
—
|
|
|
—
|
|
|
1,095
|
|
|
(383
|
)
|
|
(73
|
)
|
|
639
|
|
|||||||
Student Loans
|
530
|
|
|
—
|
|
|
—
|
|
|
271
|
|
|
(39
|
)
|
|
(4
|
)
|
|
228
|
|
|||||||
Ambac UK and Other Credits
|
1,170
|
|
|
—
|
|
|
—
|
|
|
294
|
|
|
(5
|
)
|
|
(16
|
)
|
|
273
|
|
|||||||
Loss expenses
|
—
|
|
|
—
|
|
|
—
|
|
|
66
|
|
|
—
|
|
|
—
|
|
|
66
|
|
|||||||
Totals
|
$
|
9,403
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,422
|
|
|
$
|
(2,422
|
)
|
|
$
|
(107
|
)
|
|
$
|
(107
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
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 and Other Credits
|
1,478
|
|
|
—
|
|
|
—
|
|
|
341
|
|
|
(11
|
)
|
|
(27
|
)
|
|
303
|
|
|||||||
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 $540 and $23 respectively, at
December 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)
Issuer Type
December 31,
|
2018
|
|
2017
|
||||||||||||
Gross Par
Outstanding (1) |
|
Gross Loss
Reserves |
|
Gross Par
Outstanding (1) |
|
Gross Loss
Reserves |
|||||||||
Lease and tax-backed
|
$
|
2,062
|
|
|
$
|
528
|
|
|
$
|
2,201
|
|
|
$
|
650
|
|
General obligation
|
904
|
|
|
24
|
|
|
1,053
|
|
|
60
|
|
||||
Transportation revenue
|
471
|
|
|
49
|
|
|
495
|
|
|
64
|
|
||||
Housing
|
445
|
|
|
26
|
|
|
449
|
|
|
31
|
|
||||
Other
|
105
|
|
|
12
|
|
|
67
|
|
|
11
|
|
||||
Total
|
$
|
3,987
|
|
|
$
|
639
|
|
|
$
|
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.
|
($ in millions)
|
|
December 31,
2018 |
|
December 31, 2017
|
||||
Surplus notes
|
|
$
|
737
|
|
|
$
|
918
|
|
Ambac note
|
|
1,940
|
|
|
—
|
|
||
Tier 2 notes
|
|
252
|
|
|
—
|
|
||
Secured borrowing
|
|
—
|
|
|
74
|
|
||
Total Long-term Debt
|
|
$
|
2,929
|
|
|
$
|
992
|
|
•
|
The commutation transactions resulted in a reduction of Ambac Assurance's insured exposure to COFINA by approximately 75% and an incurred loss of $37.3 million in 2019, which will be offset by accelerated earned premiums of $29.6 million on the insured exposures being commuted.
|
•
|
The non-commuted portion of Ambac Assurance's policy (approximately 25%) or net par exposure of $202 million will remain in force. This remaining policy portion of Ambac Assurance's COFINA exposure together with old COFINA bonds have been deposited into a trust together with the new COFINA bonds and cash and the non-commuted Ambac-insured bondholders receiving units of the trust in return. Cash flows from the new COFINA bonds and cash will be passed through to unit-holders over time and will reduce amounts owed under the remaining Ambac Assurance policy.
|
•
|
Loss reserves are only established for losses on guaranteed obligations that have experienced a payment default in an amount that is sufficient to cover the present value of the anticipated defaulted debt service payments over the expected period of default, less estimated recoveries under subrogation rights (5.1% as prescribed by OCI). Loss reserves are established for non-defaulted policies on the date when a binding commutation contract is signed by the counterparty. Under GAAP, in addition to the establishment of loss reserves for defaulted obligations, loss reserves are established (net of GAAP basis unearned premium revenue) for obligations that have experienced credit deterioration, but have not yet defaulted using a weighted-average risk-free discount rate, currently at 2.8%.
|
•
|
Mandatory contingency reserves are required based upon the type of obligation insured, whereas GAAP does not require such a reserve. Releases of the contingency reserves are
|
•
|
Investment grade fixed income investments are stated at amortized cost and certain below investment grade fixed income investments are reported at the lower of amortized cost or fair value. Under GAAP, all fixed income investments are reported at fair value.
|
•
|
Wholly owned subsidiaries are not consolidated; rather, the equity basis of accounting is utilized and the carrying values of these investments are subject to admissibility tests.
|
•
|
Variable interest entities are not required to be assessed for consolidation. Under GAAP, a reporting entity that has both the following characteristics is required to consolidate the VIE: a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Ambac generally has the obligation to absorb losses of VIEs that could potentially be significant to the VIE as the result of its guarantee of insured obligations issued by VIEs. For certain VIEs Ambac Assurance has the power to direct the most significant activities of the VIE and accordingly consolidates the related VIEs under GAAP.
|
•
|
All payments of principal and interest on the surplus notes are subject to the approval of the OCI. Unpaid interest due on the surplus notes is expensed when the approval for payment of interest has been granted by the OCI. Under GAAP, interest on surplus notes is accrued regardless of OCI approval.
|
•
|
Upfront premiums written are earned on a basis proportionate to the remaining scheduled debt service to the original total principal and interest insured. Installment premiums are reflected in income pro-rata over the period covered by the premium payment. When an insurance policy has been legally defeased, the related portion of unearned premium revenue is accelerated and recognized as premiums earned. Under GAAP, premium revenues for both upfront and installment premiums are earned over the life of the financial guarantee contract in proportion to the insured principal amount outstanding at each reporting date.
|
•
|
Fresh start financial statement reporting is not a concept within SAP. Under GAAP, Ambac determined that fresh start financial statement reporting was to be applied upon our emergence from Chapter 11. Fresh start financial reporting required Ambac to adjust the historical carrying of its assets and liabilities to fair value, including an insurance intangible asset which represented the difference between the fair value and aggregate carrying value of the financial guarantee insurance and reinsurance assets and liabilities. This insurance intangible asset is amortized as an expense on a level yield basis over the life of the related insurance risks.
|
•
|
Loss reserves are only established for losses on guaranteed obligations when, in the judgment of management, a monetary default in the timely payment of debt service is likely to occur, which would result in Ambac UK incurring a loss. A loss provision is established in an amount that is sufficient to cover the present value (currently using a discount rate of 2.46%) of the anticipated defaulted debt service payments over the expected period of default, less estimated recoveries under subrogation rights. The discount rate is equal to the lower of the rate of return on invested assets for either the current year or the period covering the current year plus the four previous years. Under U.S. GAAP, loss reserves are established (net of U.S. GAAP basis unearned premium revenue) for obligations that have experienced credit deterioration, but have not yet defaulted using a weighted-average risk-free discount rate, currently at 2.8% for Ambac UK related transactions.
|
•
|
Investments in fixed income securities are stated at amortized cost, subject to an other-than-temporary impairment evaluation. Under U.S. GAAP, all bonds are reported at fair value.
|
•
|
Purchases of Ambac UK insured securities are bifurcated into an intrinsic and an Ambac UK claim based value. The intrinsic value is recorded as an investment whereas the Ambac UK claim based value is recorded as a claim payment with an accompanying reduction in Ambac UK loss reserves. Under U.S. GAAP, purchases of Ambac UK insured securities are reported as investments and do not reduce loss reserves.
|
•
|
Variable interest entities (“VIE”) are not required to be assessed for consolidation. Under U.S. GAAP, a reporting entity that has both the following characteristics is required to consolidate the VIE: a) the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance; and b) the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE. Ambac generally has the obligation to absorb losses of VIEs that could potentially be significant to the VIE as the result of its guarantee of insured obligations issued by VIEs. For certain VIEs Ambac UK has the power to direct the most significant activities of the VIE and accordingly consolidates the related VIEs under U.S. GAAP.
|
•
|
Upfront premiums written are earned on a basis proportionate to the remaining scheduled debt service to the total principal and interest insured. Installment premiums are reflected in income pro-rata over the period covered by the premium
|
•
|
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 the implementation of Fresh Start reporting. These adjustments ensure that all financial guarantee contracts are accounted for consistent with the provisions of the Financial Services – Insurance Topic of the ASC.
|
•
|
Foreign exchange (gains) losses: Elimination of the foreign exchange gains (losses) on the re-measurement of assets, liabilities and transactions in non-functional currencies. This adjustment eliminates the foreign exchange gains (losses) on all assets, liabilities and transactions in non-functional currencies, which enables users of our financial statements to better view the business results without the impact of fluctuations in foreign currency exchange rates, particularly as assets held in non-functional currencies have grown, and facilitates period-to-period comparisons of Ambac's operating performance.
|
•
|
Fair value (gain) loss on interest rate derivative from Ambac CVA:
Elimination of the gains (losses) relating to Ambac’s CVA on interest rate derivative contracts. Similar to credit derivatives, fair values include the market’s perception of Ambac’s credit risk and this adjustment only allows for such gain or loss when realized.
|
|
2018
|
|
2017
|
|
2016
|
||||||||||||||||||
($ in millions, except per share data)
Year Ended December 31, |
$ Amount
|
|
Per Diluted Share
|
|
$ Amount
|
|
Per Diluted Share
|
|
$ Amount
|
|
Per Diluted Share
|
||||||||||||
Net income (loss) attributable to common stockholders
|
$
|
186
|
|
|
$
|
3.99
|
|
|
$
|
(329
|
)
|
|
$
|
(7.25
|
)
|
|
$
|
75
|
|
|
$
|
1.64
|
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Non-credit impairment fair value (gain) loss on credit derivatives
|
1
|
|
|
0.02
|
|
|
(11
|
)
|
|
(0.24
|
)
|
|
(8
|
)
|
|
(0.16
|
)
|
||||||
Insurance intangible amortization
|
107
|
|
|
2.30
|
|
|
151
|
|
|
3.33
|
|
|
175
|
|
|
3.82
|
|
||||||
Foreign exchange (gains) losses
|
7
|
|
|
0.16
|
|
|
(21
|
)
|
|
(0.47
|
)
|
|
39
|
|
|
0.86
|
|
||||||
Fair value (gain) loss on interest rate derivatives from Ambac CVA
|
—
|
|
|
—
|
|
|
45
|
|
|
0.99
|
|
|
34
|
|
|
0.73
|
|
||||||
Adjusted Earnings (Loss)
|
$
|
301
|
|
|
$
|
6.47
|
|
|
$
|
(165
|
)
|
|
$
|
(3.64
|
)
|
|
$
|
315
|
|
|
$
|
6.89
|
|
•
|
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.
|
|
2018
|
|
2017
|
||||||||||||
($ in millions, except per share data) December 31,
|
$ Amount
|
|
Per Share
|
|
$ Amount
|
|
Per Share
|
||||||||
Total Ambac Financial Group, Inc. stockholders’ equity
|
$
|
1,592
|
|
|
$
|
35.12
|
|
|
$
|
1,381
|
|
|
$
|
30.52
|
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Non-credit impairment fair value losses on credit derivatives
|
1
|
|
|
0.03
|
|
|
1
|
|
|
0.01
|
|
||||
Insurance intangible asset
|
(719
|
)
|
|
(15.87
|
)
|
|
(847
|
)
|
|
(18.71
|
)
|
||||
Net unearned premiums and fees in excess of expected losses
|
462
|
|
|
10.19
|
|
|
597
|
|
|
13.20
|
|
||||
Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income
|
(86
|
)
|
|
(1.89
|
)
|
|
(31
|
)
|
|
(0.68
|
)
|
||||
Adjusted Book Value
|
$
|
1,251
|
|
|
$
|
27.58
|
|
|
$
|
1,101
|
|
|
$
|
24.34
|
|
Item 7A.
|
Quantitative and Qualitative Disclosures about Market Risk
|
($ in millions)
|
|
Estimated Change in Net Fair Value
|
|
Estimated Net Fair Value
|
||||
300 Basis Point Rise
|
|
$
|
265
|
|
|
$
|
(701
|
)
|
200 Basis Point Rise
|
|
179
|
|
|
(787
|
)
|
||
100 Basis Point Rise
|
|
91
|
|
|
(875
|
)
|
||
Base Scenario
|
|
—
|
|
|
(966
|
)
|
||
100 Basis Point Decline
(1)
|
|
(94
|
)
|
|
(1,060
|
)
|
||
200 Basis Point Decline
(1)
|
|
(191
|
)
|
|
(1,157
|
)
|
(1)
|
Incorporates an interest rate floor of 0%
|
($ in millions)
|
|
Estimated Change in Net Fair Value
|
|
Estimated Net Fair Value
|
||||
250 Basis Point Widening
|
|
$
|
(17
|
)
|
|
$
|
(34
|
)
|
50 Basis Point Widening
|
|
(4
|
)
|
|
(21
|
)
|
||
Base Scenario
|
|
—
|
|
|
(17
|
)
|
||
250 Basis Point Narrowing
|
|
3
|
|
|
(5
|
)
|
($ in millions)
|
|
Estimated Change in Net Fair Value
|
|
Estimated Net Fair Value
|
||||
250 Basis Point Widening
|
|
$
|
(104
|
)
|
|
$
|
2,581
|
|
50 Basis Point Widening
|
|
(21
|
)
|
|
2,664
|
|
||
Base Scenario
|
|
—
|
|
|
2,685
|
|
||
50 Basis Point Narrowing
|
|
20
|
|
|
2,705
|
|
||
250 Basis Point Narrowing
|
|
74
|
|
|
2,759
|
|
($ in millions)
|
|
Estimated change in fair value
|
||
Change in Foreign Exchange Rates Against U.S. Dollar
|
|
|
||
20% Decrease
|
|
$
|
(56
|
)
|
10% Decrease
|
|
(28
|
)
|
|
10% Increase
|
|
28
|
|
|
20% Increase
|
|
56
|
|
Reports of Independent Registered Public Accounting Firm
|
|
|||||
|
|
|
|
|
|
|
Consolidated Financial Statements
|
||||||
Consolidated Balance Sheets
|
|
|
Consolidated Statements of Stockholders’ Equity
|
|
||
Consolidated Statements of Total Comprehensive Income (Loss)
|
|
|
Consolidated Statements of Cash Flows
|
|
||
|
|
|
|
|
|
|
Notes to Consolidated Financial Statements
|
||||||
Note 1. Background and Business Description
|
|
|
Note 10. Investments
|
|
||
Note 2. Basis of Presentation and Significant Accounting Policies
|
|
|
Note 11. Derivative Instruments
|
|
||
Note 3. Variable Interest Entities
|
|
|
Note 12. Loans
|
|
||
Note 4. Comprehensive Income
|
|
|
Note 13. Long-term Debt
|
|
||
Note 5. Net Income Per Share
|
|
|
Note 14. Income Taxes
|
|
||
Note 6. Financial Guarantees in Force
|
|
|
Note 15. Employment Benefit Plans
|
|
||
Note 7. Financial Guarantee Insurance Contracts
|
|
|
Note 16. Commitments and Contingencies
|
|
||
Note 8. Insurance Regulatory Restrictions
|
|
|
Note 17. Quarterly Information (Unaudited)
|
|
||
Note 9. Fair Value Measurements
|
|
|
|
|
|
(Dollars in thousands, except share data) December 31,
|
2018
|
|
2017
|
||||
Assets:
|
|
|
|
||||
Investments:
|
|
|
|
||||
Fixed income securities, at fair value (amortized cost of $3,020,744 and $4,614,623)
|
$
|
3,115,675
|
|
|
$
|
4,652,172
|
|
Fixed income securities pledged as collateral, at fair value (amortized cost of $0 and $99,719)
|
—
|
|
|
99,719
|
|
||
Short-term investments, at fair value (amortized cost of $430,405 and $557,476)
|
430,331
|
|
|
557,270
|
|
||
Other investments (includes $351,049 and $396,689 at fair value)
|
391,217
|
|
|
431,630
|
|
||
Total investments
|
3,937,223
|
|
|
5,740,791
|
|
||
Cash and cash equivalents
|
63,089
|
|
|
623,703
|
|
||
Restricted cash
|
19,405
|
|
|
—
|
|
||
Receivable for securities
|
3,351
|
|
|
11,177
|
|
||
Investment income due and accrued
|
11,576
|
|
|
16,532
|
|
||
Premium receivables
|
495,391
|
|
|
586,312
|
|
||
Reinsurance recoverable on paid and unpaid losses
|
23,133
|
|
|
40,997
|
|
||
Deferred ceded premium
|
61,134
|
|
|
52,195
|
|
||
Subrogation recoverable
|
1,932,960
|
|
|
631,213
|
|
||
Loans
|
9,913
|
|
|
10,358
|
|
||
Derivative assets
|
59,468
|
|
|
73,199
|
|
||
Current taxes
|
47,040
|
|
|
11,803
|
|
||
Insurance intangible asset
|
718,931
|
|
|
846,973
|
|
||
Other assets
|
112,788
|
|
|
46,614
|
|
||
Variable interest entity assets:
|
|
|
|
||||
Fixed income securities, at fair value
|
2,737,286
|
|
|
2,914,145
|
|
||
Restricted cash
|
999
|
|
|
978
|
|
||
Loans, at fair value
|
4,287,664
|
|
|
11,529,384
|
|
||
Derivative assets
|
66,302
|
|
|
54,877
|
|
||
Other assets
|
1,058
|
|
|
1,123
|
|
||
Total assets
|
$
|
14,588,711
|
|
|
$
|
23,192,374
|
|
Liabilities and Stockholders’ Equity:
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Unearned premiums
|
$
|
629,971
|
|
|
$
|
783,155
|
|
Loss and loss expense reserves
|
1,826,078
|
|
|
4,745,015
|
|
||
Ceded premiums payable
|
32,913
|
|
|
37,876
|
|
||
Deferred taxes
|
40,130
|
|
|
33,659
|
|
||
Long-term debt
|
2,928,929
|
|
|
991,696
|
|
||
Accrued interest payable
|
375,808
|
|
|
436,984
|
|
||
Derivative liabilities
|
76,699
|
|
|
82,782
|
|
||
Other liabilities
|
62,085
|
|
|
67,583
|
|
||
Payable for securities purchased
|
1,707
|
|
|
1,932
|
|
||
Variable interest entity liabilities:
|
|
|
|
||||
Accrued interest payable
|
556
|
|
|
589
|
|
||
Long-term debt, at fair value
|
5,268,596
|
|
|
12,160,544
|
|
||
Derivative liabilities
|
1,712,062
|
|
|
2,205,264
|
|
||
Other liabilities
|
30
|
|
|
37
|
|
||
Total liabilities
|
12,955,564
|
|
|
21,547,116
|
|
||
Commitments and contingencies (See Note 16)
|
|
|
|
||||
Stockholders’ equity:
|
|
|
|
||||
Preferred stock, par value $0.01 per share; 20,000,000 shares authorized shares; issued and outstanding shares—none
|
—
|
|
|
—
|
|
||
Common stock, par value $0.01 per share; 130,000,000 shares authorized; issued shares: 45,365,170 and 45,275,982
|
454
|
|
|
453
|
|
||
Additional paid-in capital
|
219,429
|
|
|
199,560
|
|
||
Accumulated other comprehensive income (loss)
|
(48,715
|
)
|
|
(52,239
|
)
|
||
Retained earnings
|
1,421,302
|
|
|
1,233,845
|
|
||
Treasury stock, shares at cost: 28,892 and
24,816
|
(473
|
)
|
|
(471
|
)
|
||
Total Ambac Financial Group, Inc. stockholders’ equity
|
1,591,997
|
|
|
1,381,148
|
|
||
Noncontrolling interest
|
41,150
|
|
|
264,110
|
|
||
Total stockholders’ equity
|
1,633,147
|
|
|
1,645,258
|
|
||
Total liabilities and stockholders’ equity
|
$
|
14,588,711
|
|
|
$
|
23,192,374
|
|
(Dollars in thousands, except share data) Year Ended December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Net premiums earned
|
$
|
111,089
|
|
|
$
|
175,277
|
|
|
$
|
197,287
|
|
Net investment income:
|
|
|
|
|
|
||||||
Securities available-for-sale and short-term
|
270,525
|
|
|
337,774
|
|
|
281,049
|
|
|||
Other investments
|
2,192
|
|
|
23,179
|
|
|
32,318
|
|
|||
Total net investment income
|
272,717
|
|
|
360,953
|
|
|
313,367
|
|
|||
Other-than-temporary impairment losses:
|
|
|
|
|
|
||||||
Total other-than-temporary impairment losses
|
(3,260
|
)
|
|
(54,625
|
)
|
|
(89,700
|
)
|
|||
Portion of other-than-temporary impairment recognized in other comprehensive income
|
22
|
|
|
34,454
|
|
|
67,881
|
|
|||
Net other-than-temporary impairment losses recognized in earnings
|
(3,238
|
)
|
|
(20,171
|
)
|
|
(21,819
|
)
|
|||
Net realized investment gains (losses)
|
111,624
|
|
|
5,366
|
|
|
39,284
|
|
|||
Net gains (losses) on derivative contracts
|
6,990
|
|
|
75,937
|
|
|
(30,167
|
)
|
|||
Net realized gains on extinguishment of debt
|
3,121
|
|
|
4,920
|
|
|
4,845
|
|
|||
Other income
|
4,922
|
|
|
214
|
|
|
18,070
|
|
|||
Income (loss) on variable interest entities
|
3,436
|
|
|
19,670
|
|
|
(14,093
|
)
|
|||
Total revenues
|
510,661
|
|
|
622,166
|
|
|
506,774
|
|
|||
Expenses:
|
|
|
|
|
|
||||||
Losses and loss expenses (benefit)
|
(223,613
|
)
|
|
513,186
|
|
|
(11,489
|
)
|
|||
Insurance intangible amortization
|
107,281
|
|
|
150,854
|
|
|
174,608
|
|
|||
Operating expenses
|
112,204
|
|
|
122,436
|
|
|
114,285
|
|
|||
Interest expense
|
242,256
|
|
|
119,941
|
|
|
124,344
|
|
|||
Total expenses
|
238,128
|
|
|
906,417
|
|
|
401,748
|
|
|||
Pre-tax income (loss)
|
272,533
|
|
|
(284,251
|
)
|
|
105,026
|
|
|||
Provision for income taxes
|
5,134
|
|
|
44,464
|
|
|
30,709
|
|
|||
Net income (loss)
|
267,399
|
|
|
(328,715
|
)
|
|
74,317
|
|
|||
Less: net gain (loss) attributable to noncontrolling interest
|
—
|
|
|
—
|
|
|
(526
|
)
|
|||
Less: loss on exchange of auction market preferred shares
|
81,686
|
|
|
—
|
|
|
—
|
|
|||
Net income (loss) attributable to common stockholders
|
$
|
185,713
|
|
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
Other comprehensive income (loss), after tax:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
267,399
|
|
|
$
|
(328,715
|
)
|
|
$
|
74,317
|
|
Unrealized gains (losses) on securities, net of income tax provision (benefit) of $2,366, $0 and $0
|
55,148
|
|
|
(81,520
|
)
|
|
67,900
|
|
|||
Gains (losses) on foreign currency translation, net of income tax provision (benefit) of $0, $0 and $0
|
(47,893
|
)
|
|
73,586
|
|
|
(122,128
|
)
|
|||
Credit risk changes of fair value option liabilities, net of income tax provision (benefit) of $161, $0 and $0
|
935
|
|
|
—
|
|
|
—
|
|
|||
Changes to postretirement benefit, net of income tax provision (benefit) of $0, $0 and $0
|
(1,766
|
)
|
|
1,273
|
|
|
23
|
|
|||
Total other comprehensive income (loss), net of income tax
|
6,424
|
|
|
(6,661
|
)
|
|
(54,205
|
)
|
|||
Total comprehensive income (loss)
|
273,823
|
|
|
(335,376
|
)
|
|
20,112
|
|
|||
Less: comprehensive (loss) gain attributable to the noncontrolling interest:
|
|
|
|
|
|
||||||
Net gain
|
—
|
|
|
—
|
|
|
(526
|
)
|
|||
Less: loss on exchange of auction market preferred shares
|
81,686
|
|
|
—
|
|
|
—
|
|
|||
Total comprehensive income (loss) attributable to common stockholders
|
$
|
192,137
|
|
|
$
|
(335,376
|
)
|
|
$
|
20,638
|
|
Net income (loss) per share attributable to common stockholders:
|
|
|
|
|
|
||||||
Basic
|
$
|
4.07
|
|
|
$
|
(7.25
|
)
|
|
$
|
1.66
|
|
Diluted
|
$
|
3.99
|
|
|
$
|
(7.25
|
)
|
|
$
|
1.64
|
|
|
|
|
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
|
273,823
|
|
|
267,399
|
|
|
6,424
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjustment to initially apply ASU 2016-01
|
—
|
|
|
2,900
|
|
|
(2,900
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Stock-based compensation
|
11,854
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,854
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(1,158
|
)
|
|
(1,156
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
||||||||
Issuance of common stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Exchange of auction market preferred shares
|
(296,634
|
)
|
|
(81,686
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,012
|
|
|
—
|
|
|
(222,960
|
)
|
||||||||
Warrants exercised
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2018
|
$
|
1,633,147
|
|
|
$
|
1,421,302
|
|
|
$
|
(48,715
|
)
|
|
$
|
—
|
|
|
$
|
454
|
|
|
$
|
219,429
|
|
|
$
|
(473
|
)
|
|
$
|
41,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Balance at January 1, 2017
|
$
|
1,978,024
|
|
|
$
|
1,557,681
|
|
|
$
|
(38,990
|
)
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
195,267
|
|
|
$
|
(496
|
)
|
|
$
|
264,110
|
|
Total comprehensive income
|
(335,376
|
)
|
|
(328,715
|
)
|
|
(6,661
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjustment to initially apply ASU 2018-02
|
—
|
|
|
6,588
|
|
|
(6,588
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjustment to initially apply ASU 2016-09
|
(137
|
)
|
|
(137
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Stock-based compensation
|
4,293
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,293
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(1,547
|
)
|
|
(1,572
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25
|
|
|
—
|
|
||||||||
Issuance of common stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2017
|
$
|
1,645,258
|
|
|
$
|
1,233,845
|
|
|
$
|
(52,239
|
)
|
|
$
|
—
|
|
|
$
|
453
|
|
|
$
|
199,560
|
|
|
$
|
(471
|
)
|
|
$
|
264,110
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Balance at January 1, 2016
|
$
|
1,958,346
|
|
|
$
|
1,478,439
|
|
|
$
|
15,215
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
$
|
190,813
|
|
|
$
|
(118
|
)
|
|
$
|
273,547
|
|
Total comprehensive income
|
20,112
|
|
|
74,843
|
|
|
(54,205
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(526
|
)
|
||||||||
Adjustment to initially apply ASU 2014-13
|
—
|
|
|
6,442
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,442
|
)
|
||||||||
Stock-based compensation
|
5,253
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,253
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(505
|
)
|
|
(127
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(378
|
)
|
|
—
|
|
||||||||
Cost of warrants acquired
|
(2,717
|
)
|
|
(1,916
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(801
|
)
|
|
—
|
|
|
—
|
|
||||||||
Issuance of common stock
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Deconsolidation of a variable interest entity
|
(2,469
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2,469
|
)
|
||||||||
Warrants exercised
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2016
|
$
|
1,978,024
|
|
|
$
|
1,557,681
|
|
|
$
|
(38,990
|
)
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
195,267
|
|
|
$
|
(496
|
)
|
|
$
|
264,110
|
|
(Dollars in thousands) Year Ended December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Net income (loss) attributable to common stockholders
|
$
|
185,713
|
|
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
Noncontrolling interest in subsidiaries’ earnings
|
—
|
|
|
—
|
|
|
(526
|
)
|
|||
Exchange for auction market preferred shares
|
81,686
|
|
|
—
|
|
|
—
|
|
|||
Net income (loss)
|
267,399
|
|
|
(328,715
|
)
|
|
74,317
|
|
|||
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization
|
699
|
|
|
992
|
|
|
1,220
|
|
|||
Amortization of bond premium and discount
|
(136,772
|
)
|
|
(182,997
|
)
|
|
(150,061
|
)
|
|||
Share-based compensation
|
11,854
|
|
|
4,293
|
|
|
5,253
|
|
|||
Deferred income taxes
|
6,572
|
|
|
31,939
|
|
|
(485
|
)
|
|||
Current income taxes
|
(35,498
|
)
|
|
(26,272
|
)
|
|
9,727
|
|
|||
Unearned premiums, net
|
(162,542
|
)
|
|
(168,208
|
)
|
|
(289,140
|
)
|
|||
Losses and loss expenses, net
|
(1,633,203
|
)
|
|
399,982
|
|
|
853,978
|
|
|||
Ceded premiums payable
|
(4,963
|
)
|
|
(4,653
|
)
|
|
(10,965
|
)
|
|||
Investment income due and accrued
|
4,967
|
|
|
9,425
|
|
|
(750
|
)
|
|||
Premium receivables
|
91,300
|
|
|
76,900
|
|
|
172,331
|
|
|||
Accrued interest payable
|
9,168
|
|
|
49,969
|
|
|
66,439
|
|
|||
Amortization of insurance intangible assets
|
107,281
|
|
|
150,854
|
|
|
174,608
|
|
|||
Net mark-to-market (gains) losses
|
893
|
|
|
(14,783
|
)
|
|
(19,194
|
)
|
|||
Net realized investment gains
|
(111,624
|
)
|
|
(5,366
|
)
|
|
(39,284
|
)
|
|||
Other-than-temporary impairment charges
|
3,238
|
|
|
20,171
|
|
|
21,819
|
|
|||
(Gain) loss on extinguishment of debt
|
(3,121
|
)
|
|
(4,920
|
)
|
|
(4,845
|
)
|
|||
Variable interest entity activities
|
(3,436
|
)
|
|
(19,670
|
)
|
|
14,093
|
|
|||
Derivative assets and liabilities
|
(17,488
|
)
|
|
(223,247
|
)
|
|
(7,625
|
)
|
|||
Other, net
|
62,013
|
|
|
13,036
|
|
|
(41,130
|
)
|
|||
Net cash used in operating activities
|
(1,543,263
|
)
|
|
(221,270
|
)
|
|
830,306
|
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Proceeds from sales of bonds
|
1,247,506
|
|
|
2,138,936
|
|
|
867,882
|
|
|||
Proceeds from matured bonds
|
431,736
|
|
|
813,990
|
|
|
1,317,215
|
|
|||
Purchases of bonds
|
(528,156
|
)
|
|
(2,053,693
|
)
|
|
(2,574,285
|
)
|
|||
Proceeds from sales of other invested assets
|
158,846
|
|
|
349,799
|
|
|
131,703
|
|
|||
Purchases of other invested assets
|
(140,338
|
)
|
|
(299,424
|
)
|
|
(281,570
|
)
|
|||
Change in short-term investments
|
126,742
|
|
|
(126,891
|
)
|
|
(206,002
|
)
|
|||
Change in cash collateral receivable
|
(57,736
|
)
|
|
122,844
|
|
|
27,372
|
|
|||
Proceeds from paydowns of consolidated VIE assets
|
348,873
|
|
|
234,670
|
|
|
261,556
|
|
|||
Other, net
|
383
|
|
|
(16,792
|
)
|
|
3,042
|
|
|||
Net cash provided by (used in) investing activities
|
1,587,856
|
|
|
1,163,439
|
|
|
(453,087
|
)
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Net proceeds from issuance of Tier 2 notes
|
240,000
|
|
|
—
|
|
|
—
|
|
|||
Proceeds from issuance of surplus notes
|
24,190
|
|
|
—
|
|
|
—
|
|
|||
Paydowns of Ambac Note
|
(214,062
|
)
|
|
—
|
|
|
—
|
|
|||
Paydowns of a secured borrowing
|
(73,993
|
)
|
|
(28,992
|
)
|
|
(29,482
|
)
|
|||
Payments for investment agreement draws
|
—
|
|
|
(82,358
|
)
|
|
(17,964
|
)
|
|||
Payments for extinguishment of surplus notes
|
(191,258
|
)
|
|
(69,499
|
)
|
|
(19,550
|
)
|
|||
Payments for debt issuance costs
|
(9,221
|
)
|
|
—
|
|
|
—
|
|
|||
Payments for auction market preferred shares
|
(11,048
|
)
|
|
—
|
|
|
—
|
|
|||
Tax payments related to shares withheld for share-based compensation plans
|
(1,116
|
)
|
|
(1,268
|
)
|
|
—
|
|
|||
Proceeds from warrant exercises
|
3
|
|
|
—
|
|
|
2
|
|
|||
Cost of warrants acquired
|
—
|
|
|
—
|
|
|
(2,717
|
)
|
|||
Payments of consolidated VIE liabilities
|
(348,873
|
)
|
|
(230,063
|
)
|
|
(249,271
|
)
|
|||
Net cash used in financing activities
|
(585,378
|
)
|
|
(412,180
|
)
|
|
(318,982
|
)
|
|||
Effect of foreign exchange on cash and cash equivalents
|
(403
|
)
|
|
(1,206
|
)
|
|
(3,905
|
)
|
|||
Net cash flow
|
(541,188
|
)
|
|
528,783
|
|
|
54,332
|
|
|||
Cash, cash equivalents, and restricted cash at beginning of period
|
624,681
|
|
|
95,898
|
|
|
41,566
|
|
|||
Cash, cash equivalents, and restricted cash at end of period
|
$
|
83,493
|
|
|
$
|
624,681
|
|
|
$
|
95,898
|
|
•
|
Active runoff of Ambac Assurance and its subsidiaries through transaction terminations, policy commutations, reinsurance, 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 the effectiveness and efficiency of Ambac's 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 Ambac Assurance'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 on the outstanding amount of principal and accrued and unpaid interest on tendered General Account Surplus Notes.
|
1)
|
Repu
rchased
84.4%
or
22,296
AMPS with an aggregate liquidation preference of
$557,400
, including
$34,650
in aggregate liquidation preference in the AFG Purchase;
|
2)
|
Captu
red a nominal discount of approximately
$227,000
(a discount of approximately
$253,000
on a fair market value basis) on
$557,400
of the total outstanding liquidation preference of AMPS; and
|
3)
|
Issued, in aggregate,
$212,740
in current principal amount of General Account Surplus Notes with accrued interest thereon on Settlement Date of
$98,366
, issued
824,307
warrants and paid
$11,048
in cash.
|
•
|
Loans reported at their outstanding principal balance less unamortized discount (non-VIE loans). Interest income is earned using the effective interest method based upon interest accrued on the unpaid principal balance adjusted for accretion of discounts. A loan is considered impaired when, based on the financial condition of the borrower, it is probable that Ambac will be unable to collect all principal and interest due according to the contractual terms of the loan agreement.
|
•
|
Loans held by VIEs consolidated as required under the Consolidation Topic of the ASC are carried at fair value under the fair value option election with changes in fair value recorded in Income (loss) on variable interest entities on the Consolidated Statements of Total Comprehensive Income.
|
•
|
Credit derivative contracts are accounted for at fair value since they do not qualify for the financial guarantee scope exception under the Derivatives and Hedging Topic of the ASC. Changes in fair value of credit derivatives are recorded within Net gains (losses) on derivative contracts on the Consolidated Statements of Total Comprehensive Income.
|
•
|
Ambac maintains a portfolio consisting primarily of interest rate swaps and futures contracts to economically hedge interest rate risk in the financial guarantee and investment portfolios. This portfolio also includes legacy interest rate swaps with asset-backed securitization issuers, states, municipalities and their authorities which were written in connection with their financings. Changes in fair value of all interest rate derivatives are recorded within net gains (losses) on derivative contracts on the Consolidated Statements of Total Comprehensive Income.
|
•
|
VIEs consolidated under the Consolidation Topic of the ASC entered into derivative contracts to meet specified purposes within their securitization structure. Changes in fair value of consolidated VIE derivatives are included within Income (loss) on variable interest entities on the Consolidated Statements of Total Comprehensive Income.
|
•
|
Unpaid claims represent the sum of (i) claims not yet paid for policies allocated to the Segregated Account, including Deferred Amounts and (ii) accrued interest on Deferred Amounts (generally at an effective rate of
5.1%
.) as required by the Segregated Account Rehabilitation Plan that became effective on June 12, 2014. Unpaid claims are measured based on the cost of settling the claims, which is principal plus accrued interest. 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. Subsequent to the Rehabilitation Exit Transactions, unpaid claims are no longer included as a component of loss reserves. Refer to
Note 1. Background and Business Description
for further discussion of the Segregated Account rehabilitation.
|
•
|
The PV of expected net cash flows represents the PV of expected cash outflows less the PV of expected cash inflows. The PV of expected net cash flows are impacted by: (i) expected future claims to be paid under an insurance contract, including the impact of potential settlement outcomes upon future installment premiums, (ii) expected recoveries from contractual breaches of RMBS representations and warranties by transaction sponsors, which is discussed further in the “RMBS Representation and Warranty Subrogation Recoveries” section below, (iii) excess spread within the underlying transaction's cash flow structure, and (iv) other subrogation recoveries, including other litigation recoveries and 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
|
•
|
Survey list - credits that may lack information or demonstrate a weakness but further deterioration is not expected.
|
•
|
Watch list - credits that demonstrate the potential for future material adverse development due to such factors as long-term uncertainty about a particular sector, a certain structural element or concern related to the issuer or transaction or the overall financial and economic sustainability.
|
•
|
Deferred stock units granted vest upon grant and will settle and convert to Ambac common stock annually over a two-year period (
50%
on the first anniversary of the grant date and
50%
on the second anniversary of the grant date). The fair value of these grants is recognized as compensation expense on the date of grant since no future service is required.
|
•
|
Restricted stock units granted only require future service and accordingly the respective fair value is recognized as compensation expense over the relevant service period.
|
•
|
Performance stock units granted and performance cash awards require both future service and achieving specified performance targets to vest and accordingly compensation costs are only recognized when the achievement of the performance conditions are considered probable. Once deemed probable, such compensation costs are recognized as compensation expense over the relevant service period. Compensation costs are initially based on the probable outcome of the performance conditions and adjusted for subsequent changes in the estimated or actual outcome each reporting period as necessary. Changes in the estimated or actual outcome of a performance condition are recognized by reflecting a retrospective adjustment to compensation cost in the current period.
|
(Dollars in thousands)
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
|
||||||
Income taxes
|
|
$
|
34,980
|
|
|
$
|
40,334
|
|
|
$
|
21,437
|
|
Interest on long-term debt and investment agreements
|
|
231,734
|
|
|
39,112
|
|
|
4,537
|
|
|||
Non-cash financing activities:
|
|
|
|
|
|
|
||||||
Increase in long-term debt in exchange for auction market preferred shares
|
|
187,220
|
|
|
—
|
|
|
—
|
|
|||
Decrease in long-term debt as a result of an exchange for investment securities
|
|
—
|
|
|
55,426
|
|
|
—
|
|
|||
Rehabilitation exit transaction discharge of all Deferred Amounts and cancellation of certain General Account Surplus Notes
|
|
1,918,561
|
|
|
—
|
|
|
—
|
|
|||
Reconciliation of cash, cash equivalents, and restricted cash reported within the Consolidated Balance Sheets to the Consolidated Statements of Cash Flow:
|
|
|
|
|
|
|
||||||
Cash and cash equivalents
|
|
$
|
63,089
|
|
|
$
|
623,703
|
|
|
$
|
91,025
|
|
Restricted cash
|
|
19,405
|
|
|
—
|
|
|
—
|
|
|||
Variable Interest Entity Restricted cash
|
|
999
|
|
|
978
|
|
|
4,873
|
|
|||
Total cash, cash equivalents, and restricted cash shown on the Consolidated Statements of Cash Flows
|
|
$
|
83,493
|
|
|
$
|
624,681
|
|
|
$
|
95,898
|
|
•
|
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.
|
•
|
Removals: 1) Amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, 2) Policy for timing of transfers between levels, and 3) Valuation processes for Level 3 fair value measurements.
|
•
|
Modifications: 1) For investments in certain entities that calculate net asset value, disclosures are only required for the timing of liquidation of an investee's assets and the date when restrictions from redemption might lapse, only if the investee has communicated the timing to the reporting entity or publicly announced it, and 2) Clarification that the measurement uncertainty disclosure is to communicate information about the uncertainty in measurement as of the reporting date and not possible future changes.
|
•
|
Additions
: 1) Changes in unrealized gains and losses for the period included in other comprehensive income ("OCI") for recurring Level 3 fair value measurements held at the end of the reporting period and 2) Range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. Alternatively, an entity may disclose other quantitative information (such as the median or arithmetic average) if it determines that it is a more reasonable and rational method to reflect the distribution of unobservable inputs used.
|
•
|
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; and
|
•
|
Ambac is an investor in collateralized debt obligations, mortgage-backed and other asset-backed securities issued by VIEs and its ownership interest is generally insignificant to the VIE and/or Ambac does not have rights that direct the activities that are most significant to such VIE.
|
•
|
We determined that Ambac’s subsidiaries generally have the obligation to absorb a FG VIE's expected losses given that they have issued financial guarantees supporting certain liabilities (and in some cases certain assets). As further described below, Ambac consolidated certain FG VIEs because we also had the power to direct the activities that most significantly impact the VIE’s economic performance due to either: (i) the transaction experiencing deterioration and breaching performance triggers, giving Ambac the ability to exercise certain control rights or (ii) the transaction not experiencing deterioration, however due to the passive nature of the VIE, Ambac's contingent control rights upon a future breach of performance triggers is considered to be the power over the most significant activity. FG VIEs which are consolidated include recourse liabilities and, in some cases, may include non-recourse liabilities. FG VIEs' liabilities that are insured by the Company are with recourse, because the
|
•
|
A VIE is deconsolidated in the period that Ambac no longer has such control rights, which could occur in connection with the execution of remediation activities on the transaction or amortization of insured exposure, either of which may reduce the degree of Ambac’s control over a VIE.
|
•
|
Assets and liabilities of FG VIEs that are consolidated are reported within Variable interest entity assets or Variable interest entity liabilities on the Consolidated Balance Sheets.
|
•
|
Ambac has elected the fair value option for all FG VIE financial assets and financial liabilities which are consolidated. The total fair value changes in the financial assets of such FG VIEs are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss). Prior to January 1, 2018, the total fair value changes in the financial liabilities of such FG VIEs were also reported within Income (loss) on variable interest entities. As further described in
Note 2. Basis of Presentation and Significant Accounting Policies
, effective January 1, 2018, Ambac adopted ASU 2016-01. Under this ASU, for financial liabilities where fair value option has been elected, the portion of the total change in fair value caused by changes in the instrument-specific credit risk is presented separately in Other comprehensive income (loss).
|
•
|
Upon initial consolidation of a FG VIE, we recognize a gain or loss in earnings for the difference between: (i) the fair value of the consideration paid, the fair value of any non-controlling interests and the reported amount of any previously held interests and (ii) the net amount, as measured on a fair value basis, of the assets and liabilities consolidated. Upon deconsolidation of a FG VIE, we recognize a gain or loss for the difference between: (i) the fair value of any consideration received, the fair value of any retained non-controlling investment in the VIE and the carrying amount of any non-controlling interest in the VIE and (ii) the carrying amount of the VIE’s assets and liabilities. Gains or losses from consolidation and deconsolidation that are reported in earnings are reported within Income (loss) on variable interest entities on the Consolidated Statements of Total Comprehensive Income (Loss).
|
•
|
The impact of consolidating such FG VIEs on Ambac’s balance sheet is the elimination of transactions between the consolidated FG VIEs and Ambac’s operating subsidiaries and the inclusion of the FG VIE’s third party assets and liabilities. For a financial guarantee insurance policy issued to a consolidated VIE, Ambac does not reflect the financial guarantee insurance policy in accordance with the related insurance accounting rules under the Financial Services – Insurance Topic of the ASC. Consequently, upon consolidation, Ambac eliminates the insurance assets and liabilities associated with the policy from the Consolidated
|
Year Ended December 31,
|
|
2018
|
|
2017
|
|
2016
|
||||||
Income (loss) on changes related to:
|
|
|
|
|
|
|
||||||
Net change in fair value of VIE assets and liabilities
|
|
$
|
2,782
|
|
|
$
|
19,670
|
|
|
$
|
(14,093
|
)
|
Less: Credit risk changes of fair value liabilities
|
|
(1,170
|
)
|
|
—
|
|
|
—
|
|
|||
Deconsolidation
|
|
1,824
|
|
|
—
|
|
|
—
|
|
|||
Income (loss) on Variable Interest Entities
|
|
$
|
3,436
|
|
|
$
|
19,670
|
|
|
$
|
(14,093
|
)
|
December 31,
|
2018
|
|
2017
|
||||
Investments:
|
|
|
|
||||
Corporate obligations
|
$
|
2,737,286
|
|
|
$
|
2,914,145
|
|
Total variable interest entity assets: fixed income securities
|
$
|
2,737,286
|
|
|
$
|
2,914,145
|
|
|
Estimated Fair Value
|
|
Unpaid Principal Balance
|
||||
December 31, 2018:
|
|
|
|
||||
Loans
|
$
|
4,287,664
|
|
|
$
|
3,402,413
|
|
Long-term debt
|
5,268,596
|
|
|
4,552,643
|
|
||
December 31, 2017:
|
|
|
|
||||
Loans
|
11,529,384
|
|
|
8,168,651
|
|
||
Long-term debt
|
$
|
12,160,544
|
|
|
$
|
9,387,884
|
|
|
Carrying Value of Assets and Liabilities
|
||||||||||||||
|
Maximum
Exposure To Loss (1) |
|
Insurance
Assets (2) |
|
Insurance
Liabilities (3) |
|
Net Derivative
Assets (Liabilities) (4) |
||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
||||||||
Global structured finance:
|
|
|
|
|
|
|
|
||||||||
Collateralized debt obligations
|
$
|
9,787
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
Mortgage-backed—residential
(5)
|
6,713,437
|
|
|
1,859,121
|
|
|
546,682
|
|
|
—
|
|
||||
Other consumer asset-backed
|
1,700,984
|
|
|
15,435
|
|
|
238,234
|
|
|
—
|
|
||||
Other commercial asset-backed
|
873,343
|
|
|
20,735
|
|
|
12,264
|
|
|
—
|
|
||||
Other
|
2,122,648
|
|
|
53,462
|
|
|
301,260
|
|
|
7,170
|
|
||||
Total global structured finance
|
11,420,199
|
|
|
1,948,753
|
|
|
1,098,440
|
|
|
7,168
|
|
||||
Global public finance
|
24,145,956
|
|
|
309,071
|
|
|
335,437
|
|
|
(1,457
|
)
|
||||
Total
|
$
|
35,566,155
|
|
|
$
|
2,257,824
|
|
|
$
|
1,433,877
|
|
|
$
|
5,711
|
|
|
Carrying Value of Assets and Liabilities
|
||||||||||||||
|
Maximum
Exposure To Loss (1) |
|
Insurance
Assets (2) |
|
Insurance
Liabilities (3) |
|
Net Derivative
Assets (Liabilities) (4) |
||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
||||||||
Global structured finance:
|
|
|
|
|
|
|
|
||||||||
Collateralized debt obligations
|
$
|
35,555
|
|
|
$
|
169
|
|
|
$
|
1
|
|
|
$
|
(15
|
)
|
Mortgage-backed—residential
|
12,766,685
|
|
|
619,848
|
|
|
3,218,356
|
|
|
—
|
|
||||
Other consumer asset-backed
|
2,266,610
|
|
|
23,405
|
|
|
328,732
|
|
|
—
|
|
||||
Other commercial asset-backed
|
987,797
|
|
|
30,413
|
|
|
35,976
|
|
|
—
|
|
||||
Other
|
2,513,304
|
|
|
60,086
|
|
|
306,457
|
|
|
10,311
|
|
||||
Total global structured finance
|
18,569,951
|
|
|
733,921
|
|
|
3,889,522
|
|
|
10,296
|
|
||||
Global public finance
|
25,629,816
|
|
|
335,347
|
|
|
371,056
|
|
|
(551
|
)
|
||||
Total
|
$
|
44,199,767
|
|
|
$
|
1,069,268
|
|
|
$
|
4,260,578
|
|
|
$
|
9,745
|
|
(1)
|
Maximum exposure to loss represents the maximum future payments of principal and interest on insured obligations and derivative contracts plus Deferred Amounts and accrued and unpaid interest thereon. Ambac’s maximum exposure to loss does not include the benefit of any financial instruments (such as reinsurance or hedge contracts) that Ambac may utilize to mitigate the risks associated with these variable interests.
|
(2)
|
Insurance assets represent the amount recorded in “Premium receivables” and “Subrogation recoverable” for financial guarantee contracts on Ambac’s Consolidated Balance Sheets.
|
(3)
|
Insurance liabilities represent the amount recorded in “Loss and loss expense reserves” and “Unearned premiums” for financial guarantee contracts on Ambac’s Consolidated Balance Sheets.
|
(4)
|
Net derivative assets (liabilities) represent the fair value recognized on credit derivative contracts and interest rate swaps on Ambac’s Consolidated Balance Sheets.
|
(5)
|
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. This settlement impacted both insurance assets and insurance liabilities in the table above.
|
•
|
Total principal amount of debt outstanding was
$393,010
and
$420,600
at
December 31, 2018 and 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
December 31, 2018
and weighted average life of
2.1 years
. The purchase by this entity of financial assets was financed through the issuance of MTNs, which are cross-collateralized by the purchased assets. The MTNs have the same expected weighted average life as the purchased assets. Derivative contracts (interest rate swaps) are used within the entity for economic hedging purposes only. Derivative positions were established at the time MTNs were issued to purchase financial assets. As of
December 31, 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 due on the obligations and making interest payments on the MTNs.
|
|
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
|
||||||||||
Year Ended December 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 before reclassifications
|
135,903
|
|
|
(556
|
)
|
|
(47,893
|
)
|
|
—
|
|
|
87,454
|
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
(80,755
|
)
|
|
(1,210
|
)
|
|
—
|
|
|
935
|
|
|
(81,030
|
)
|
|||||
Net current period other comprehensive income
|
55,148
|
|
|
(1,766
|
)
|
|
(47,893
|
)
|
|
935
|
|
|
6,424
|
|
|||||
Balance at December 31, 2018
|
$
|
85,903
|
|
|
$
|
8,874
|
|
|
$
|
(141,527
|
)
|
|
$
|
(1,965
|
)
|
|
$
|
(48,715
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Year ended December 31, 2017:
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning Balance
|
$
|
118,863
|
|
|
$
|
9,367
|
|
|
$
|
(167,220
|
)
|
|
$
|
—
|
|
|
$
|
(38,990
|
)
|
Other comprehensive income before reclassifications
|
(96,325
|
)
|
|
2,625
|
|
|
73,586
|
|
|
—
|
|
|
(20,114
|
)
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
14,805
|
|
|
(1,352
|
)
|
|
—
|
|
|
—
|
|
|
13,453
|
|
|||||
Adjustment to initially adopt ASU 2018-02
|
(6,588
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(6,588
|
)
|
|||||
Net current period other comprehensive income (loss)
|
(88,108
|
)
|
|
1,273
|
|
|
73,586
|
|
|
—
|
|
|
(13,249
|
)
|
|||||
Balance at December 31, 2017
|
$
|
30,755
|
|
|
$
|
10,640
|
|
|
$
|
(93,634
|
)
|
|
$
|
—
|
|
|
$
|
(52,239
|
)
|
(1)
|
All amounts are net of tax and noncontrolling interest. Amounts in parentheses indicate reductions to Accumulated Other Comprehensive Income.
|
(2)
|
Represents the ch
anges 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. Refer to
Note 2. Basis of Presentation and Significant Accounting Policies
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
|
||||||
Year Ended December 31,
|
|
||||||||
2018
|
|
2017
|
|
||||||
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
|
|
|
|
||||
|
$
|
(81,665
|
)
|
|
$
|
14,805
|
|
|
Net realized investment gains (loses)
|
|
910
|
|
|
—
|
|
|
Provision for income taxes
|
||
|
$
|
(80,755
|
)
|
|
$
|
14,805
|
|
|
Net of tax and noncontrolling interest
(3)
|
Amortization of Postretirement Benefit
|
|
|
|
|
|
||||
Prior service cost
|
$
|
(963
|
)
|
|
$
|
(963
|
)
|
|
Other income
(2)
|
Actuarial gains (losses)
|
(247
|
)
|
|
(389
|
)
|
|
Other income
(2)
|
||
|
(1,210
|
)
|
|
(1,352
|
)
|
|
Total before tax
|
||
|
—
|
|
|
—
|
|
|
Provision for income taxes
|
||
|
$
|
(1,210
|
)
|
|
$
|
(1,352
|
)
|
|
Net of tax and noncontrolling interest
(3)
|
Credit Risk Changes of Fair Value Option Liabilities
|
|
|
|
|
|
||||
|
$
|
1,096
|
|
|
$
|
—
|
|
|
Credit risk changes of fair value option liabilities
|
|
(161
|
)
|
|
—
|
|
|
Provision for income taxes
|
||
|
$
|
935
|
|
|
$
|
—
|
|
|
Net of tax and noncontrolling interest
|
Total reclassifications for the period
|
$
|
(81,030
|
)
|
|
$
|
13,453
|
|
|
Net of tax and noncontrolling interest
(3)
|
(1)
|
Amounts in parentheses indicate debits to the Consolidated Statement of Comprehensive Income.
|
(2)
|
These accumulated other comprehensive income components are included in the computation of net periodic benefit cost.
|
(3)
|
Amount agrees with amount reported as reclassifications from AOCI in the disclosure about changes in AOCI balances.
|
Year Ended
December 31,
|
2018
|
|
2017
|
|
2016
|
|||
Basic weighted average shares outstanding
|
45,665,883
|
|
|
45,367,932
|
|
|
45,212,414
|
|
Effect of potential dilutive shares
(1)
:
|
|
|
|
|
|
|||
Warrants
|
441,104
|
|
|
—
|
|
|
312,619
|
|
Stock options
|
—
|
|
|
—
|
|
|
447
|
|
Restricted stock units
|
77,572
|
|
|
—
|
|
|
116,105
|
|
Performance stock units
(2)
|
375,276
|
|
|
—
|
|
|
81,939
|
|
Diluted weighted average shares outstanding
|
46,559,835
|
|
|
45,367,932
|
|
|
45,723,524
|
|
Anti-dilutive shares excluded from the above reconciliation
|
|
|
|
|
|
|||
Stock options
|
16,667
|
|
|
126,667
|
|
|
110,000
|
|
Warrants
|
—
|
|
|
4,053,670
|
|
|
—
|
|
Restricted stock units
|
—
|
|
|
68,654
|
|
|
—
|
|
Performance stock units
(2)
|
—
|
|
|
322,943
|
|
|
—
|
|
(1)
|
For the year ended
December 31, 2017
, Ambac has a net loss and accordingly excluded all potentially dilutive securities from the determination of diluted loss per share as their impact was anti-dilutive.
|
(2)
|
Performance stock units that are dilutive are reflected based on the performance metrics through the balance sheet date. Performance stock units that are anti-dilutive are reflected at their target issuance amounts. Vesting of these units is contingent upon meeting certain performance metrics. Although a portion of these performance metrics have been achieved as of the respective period end, it is possible that awards may no longer meet the metric at the end of the performance period.
|
Net Par Outstanding December 31,
|
2018
|
|
2017
|
||||
Public Finance:
|
|
|
|
||||
Lease and tax-backed revenue
|
$
|
7,565,000
|
|
|
$
|
11,893,000
|
|
Housing revenue
(1)
|
6,159,000
|
|
|
6,312,000
|
|
||
General obligation
|
4,214,000
|
|
|
6,257,000
|
|
||
Transportation revenue
|
1,754,000
|
|
|
2,002,000
|
|
||
Utility revenue
|
1,178,000
|
|
|
2,212,000
|
|
||
Higher education
|
1,168,000
|
|
|
1,642,000
|
|
||
Health care revenue
|
459,000
|
|
|
807,000
|
|
||
Other
|
945,000
|
|
|
963,000
|
|
||
Total Public Finance
|
23,442,000
|
|
|
32,088,000
|
|
||
Structured Finance:
|
|
|
|
||||
Mortgage-backed and home equity
|
5,510,000
|
|
|
7,267,000
|
|
||
Investor-owned utilities
|
1,754,000
|
|
|
3,274,000
|
|
||
Structured Insurance
|
1,365,000
|
|
|
1,420,000
|
|
||
Student loan
|
934,000
|
|
|
1,238,000
|
|
||
Asset-backed
(2)
|
237,000
|
|
|
443,000
|
|
||
Other
|
147,000
|
|
|
174,000
|
|
||
Total Structured Finance
|
9,947,000
|
|
|
13,816,000
|
|
||
International Finance:
|
|
|
|
||||
Sovereign/sub-sovereign
|
5,250,000
|
|
|
5,664,000
|
|
||
Investor-owned and public utilities
|
4,499,000
|
|
|
5,696,000
|
|
||
Transportation
|
1,613,000
|
|
|
1,777,000
|
|
||
Asset-backed
(2)
|
1,550,000
|
|
|
2,609,000
|
|
||
Mortgage-backed and home equity
|
—
|
|
|
246,000
|
|
||
Other
|
626,000
|
|
|
820,000
|
|
||
Total International Finance
|
13,538,000
|
|
|
16,812,000
|
|
||
Total
|
$
|
46,927,000
|
|
|
$
|
62,716,000
|
|
(1)
|
Includes
$5,759,000
and
$5,829,000
of Military Housing net par at
December 31, 2018 and 2017
, respectively.
|
(2)
|
At
December 31, 2018 and 2017
, all asset-backed net par amounts outstanding relate to commercial asset-based transactions.
|
Net Par Outstanding December 31,
|
2018
|
|
2017
|
||||
United Kingdom
|
$
|
10,965,000
|
|
|
$
|
13,554,000
|
|
Italy
|
811,000
|
|
|
877,000
|
|
||
Austria
|
712,000
|
|
|
770,000
|
|
||
Australia
|
384,000
|
|
|
608,000
|
|
||
France
|
312,000
|
|
|
329,000
|
|
||
Internationally diversified
(1)
|
213,000
|
|
|
368,000
|
|
||
Other international
|
141,000
|
|
|
306,000
|
|
||
Total International Finance
|
$
|
13,538,000
|
|
|
$
|
16,812,000
|
|
(1)
|
Internationally diversified obligations represent pools of geographically diversified exposures which may include components of U.S. exposure.
|
Year Ended
December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Beginning premium receivable
|
$
|
586,312
|
|
|
$
|
661,337
|
|
|
$
|
831,575
|
|
Premium receipts
|
(56,441
|
)
|
|
(81,597
|
)
|
|
(77,038
|
)
|
|||
Adjustments for changes in expected and contractual cash flows
|
(41,762
|
)
|
|
(30,334
|
)
|
|
(78,528
|
)
|
|||
Accretion of premium receivable discount
|
14,668
|
|
|
16,162
|
|
|
18,637
|
|
|||
Changes to uncollectable premiums
|
2,167
|
|
|
(141
|
)
|
|
6,054
|
|
|||
Other adjustments (including foreign exchange)
|
(9,553
|
)
|
|
20,885
|
|
|
(39,363
|
)
|
|||
Ending premium receivable
(1)
|
$
|
495,391
|
|
|
$
|
586,312
|
|
|
$
|
661,337
|
|
(1)
|
Gross premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At
December 31, 2018, 2017 and 2016
premium receivables include British Pounds of
$131,458
(
£103,088
),
$151,852
(
£112,342
) and
$177,878
(
£144,393
), respectively, and Euros of
$30,597
(
€26,708
),
$36,001
(
€29,976
) and
$34,866
(
€33,108
), respectively.
|
Year Ended
December 31,
|
Direct
|
|
Assumed
|
|
Ceded
|
|
Net
Premiums
|
||||||||
2018:
|
|
|
|
|
|
|
|
||||||||
Written
|
$
|
(23,828
|
)
|
|
$
|
—
|
|
|
$
|
16,860
|
|
|
$
|
(40,688
|
)
|
Earned
|
118,977
|
|
|
79
|
|
|
7,967
|
|
|
$
|
111,089
|
|
|||
2017:
|
|
|
|
|
|
|
|
||||||||
Written
|
(14,313
|
)
|
|
—
|
|
|
(2,104
|
)
|
|
$
|
(12,209
|
)
|
|||
Earned
|
190,496
|
|
|
106
|
|
|
15,325
|
|
|
$
|
175,277
|
|
|||
2016:
|
|
|
|
|
|
|
|
||||||||
Written
|
(53,837
|
)
|
|
—
|
|
|
(8,772
|
)
|
|
$
|
(45,065
|
)
|
|||
Earned
|
215,564
|
|
|
85
|
|
|
18,362
|
|
|
$
|
197,287
|
|
Year Ended
December 31,
|
|
2018
|
|
2017
|
|
2016
|
||||||
United States
|
|
$
|
87,539
|
|
|
$
|
134,099
|
|
|
$
|
168,646
|
|
United Kingdom
|
|
18,580
|
|
|
32,928
|
|
|
24,470
|
|
|||
Other international
|
|
4,970
|
|
|
8,250
|
|
|
4,171
|
|
|||
Total
|
|
$
|
111,089
|
|
|
$
|
175,277
|
|
|
$
|
197,287
|
|
|
Future Premiums
to be
Collected
(1)
|
|
Future
Premiums
to be
Earned Net of
Reinsurance (2) |
||||
Three months ended:
|
|
|
|
||||
March 31, 2019
|
$
|
14,616
|
|
|
$
|
12,179
|
|
June 30, 2019
|
11,795
|
|
|
12,504
|
|
||
September 30, 2019
|
12,262
|
|
|
12,458
|
|
||
December 31, 2019
|
12,121
|
|
|
12,321
|
|
||
Twelve months ended:
|
|
|
|
||||
December 31, 2020
|
48,030
|
|
|
47,064
|
|
||
December 31, 2021
|
41,828
|
|
|
43,285
|
|
||
December 31, 2022
|
39,867
|
|
|
40,692
|
|
||
December 31, 2023
|
38,268
|
|
|
37,994
|
|
||
Five years ended:
|
|
|
|
||||
December 31, 2028
|
168,545
|
|
|
156,237
|
|
||
December 31, 2033
|
127,753
|
|
|
104,420
|
|
||
December 31, 2038
|
64,142
|
|
|
54,562
|
|
||
December 31, 2043
|
24,907
|
|
|
20,764
|
|
||
December 31, 2048
|
11,335
|
|
|
10,965
|
|
||
December 31, 2053
|
2,251
|
|
|
3,310
|
|
||
December 31, 2058
|
31
|
|
|
82
|
|
||
Total
|
$
|
617,751
|
|
|
$
|
568,837
|
|
(1)
|
Future premiums to be collected are undiscounted and are used to derive the discounted premium receivable asset recorded on Ambac's balance sheet.
|
(2)
|
Future premiums to be earned, net of reinsurance relate to the unearned premiums liability and deferred ceded premium asset recorded on Ambac’s balance sheet. The use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral is required in the calculation of the premium receivable as further described in
Note 2. Basis of Presentation and Significant Accounting Policies
. This results in a different premium receivable balance than if expected lives were considered. If installment paying policies are retired or prepay early, premiums reflected in the premium receivable asset and amounts reported in the above table for such policies may not be collected. Future premiums to be earned also considers the use of contractual lives for many bond types which do not have homogeneous pools of underlying collateral, which may result in different unearned premium than if expected lives were considered. If those bonds types are retired early, premium earnings may be negative in the period of call or refinancing.
|
|
Unpaid Claims
|
|
Present Value of Expected
Net Cash Flows |
|
|
|
|
||||||||||||||||
Balance Sheet Line Item
|
Claims
|
|
Accrued
Interest |
|
Claims and
Loss Expenses |
|
Recoveries
|
|
Unearned
Premium Revenue |
|
Gross Loss and
Loss Expense Reserves |
||||||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Loss and loss expense reserves
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,246,335
|
|
|
$
|
(313,595
|
)
|
|
$
|
(106,662
|
)
|
|
$
|
1,826,078
|
|
Subrogation recoverable
|
—
|
|
|
—
|
|
|
175,694
|
|
|
(2,108,654
|
)
|
|
—
|
|
|
(1,932,960
|
)
|
||||||
Totals
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,422,029
|
|
|
$
|
(2,422,249
|
)
|
|
$
|
(106,662
|
)
|
|
$
|
(106,882
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
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
|
|
Year Ended
December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Beginning gross loss and loss expense reserves
|
$
|
4,113,802
|
|
|
$
|
3,696,038
|
|
|
$
|
2,858,813
|
|
Reinsurance recoverable
|
40,658
|
|
|
30,767
|
|
|
44,059
|
|
|||
Beginning balance of net loss and loss expense reserves
|
$
|
4,073,144
|
|
|
$
|
3,665,271
|
|
|
$
|
2,814,754
|
|
Losses and loss expenses (benefit) incurred:
|
|
|
|
|
|
||||||
Current year
|
4,884
|
|
|
5,691
|
|
|
6,675
|
|
|||
Prior years
(3)
|
(228,497
|
)
|
|
507,495
|
|
|
(18,164
|
)
|
|||
Total
(1)(2)
|
(223,613
|
)
|
|
513,186
|
|
|
(11,489
|
)
|
|||
Loss and loss expenses (recovered) paid:
|
|
|
|
|
|
||||||
Current year
|
204
|
|
|
825
|
|
|
5,371
|
|
|||
Prior years
(3)
|
3,963,341
|
|
|
133,427
|
|
|
(944,955
|
)
|
|||
Total
|
3,963,545
|
|
|
134,252
|
|
|
(939,584
|
)
|
|||
Foreign exchange effect
|
(15,491
|
)
|
|
28,939
|
|
|
(77,578
|
)
|
|||
Ending net loss and loss expense reserves
|
$
|
(129,505
|
)
|
|
$
|
4,073,144
|
|
|
$
|
3,665,271
|
|
Reinsurance recoverable
(4)
|
22,623
|
|
|
40,658
|
|
|
30,767
|
|
|||
Ending gross loss and loss expense reserves
(5)
|
$
|
(106,882
|
)
|
|
$
|
4,113,802
|
|
|
$
|
3,696,038
|
|
(1)
|
Total losses and loss expenses (benefit) includes
$1,657
,
$(20,348)
and
$5,421
for the years ended
December 31, 2018, 2017 and 2016
, respectively, related to ceded reinsurance.
|
(2)
|
Ambac records the impact of estimated recoveries related to securitized loans in RMBS transactions that breached certain representations and warranties within losses and loss expenses (benefit). The losses and loss expense (benefit) incurred associated with changes in estimated representation and warranty recoveries for the year ended
December 31, 2018, 2017 and 2016
was
$62,493
,
$72,003
and
$(71,369)
, respectively.
|
(3)
|
2018 loss and loss expenses (recovered) paid includes the settlement of Deferred Amounts and Interest Accrued on Deferred Amounts in the amount of
$3,000,158
and
$856,834
, respectively in connection with the Rehabilitation Exit Transactions through a combination of cash, surplus notes and secured notes. 2018 loss and loss expenses incurred 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
$510
,
$339
and
$(349)
as of
December 31, 2018, 2017 and 2016
, respectively, related to previously presented loss and loss expenses and subrogation.
|
(5)
|
Includes Euro denominated gross loss and loss expense reserves of
$3,328
(
€2,905
),
$21,116
(
€17,582
) and
$21,375
(
€20,297
) at
December 31, 2018, 2017 and 2016
, respectively.
|
|
|
Surveillance Categories as of December 31, 2018
|
||||||||||||||||||||||||||
|
|
I
|
|
IA
|
|
II
|
|
III
|
|
IV
|
|
V
|
|
Total
|
||||||||||||||
Number of policies
|
|
21
|
|
|
28
|
|
|
18
|
|
|
16
|
|
|
145
|
|
|
3
|
|
|
231
|
|
|||||||
Remaining weighted-average contract period (in years)
(1)
|
|
9
|
|
|
19
|
|
|
9
|
|
|
22
|
|
|
14
|
|
|
3
|
|
|
16
|
|
|||||||
Gross insured contractual payments outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Principal
|
|
$
|
916,530
|
|
|
$
|
708,249
|
|
|
$
|
622,820
|
|
|
$
|
1,705,464
|
|
|
$
|
5,407,202
|
|
|
$
|
43,140
|
|
|
$
|
9,403,405
|
|
Interest
|
|
487,702
|
|
|
631,708
|
|
|
293,293
|
|
|
6,979,130
|
|
|
2,177,539
|
|
|
13,401
|
|
|
10,582,773
|
|
|||||||
Total
|
|
$
|
1,404,232
|
|
|
$
|
1,339,957
|
|
|
$
|
916,113
|
|
|
$
|
8,684,594
|
|
|
$
|
7,584,741
|
|
|
$
|
56,541
|
|
|
$
|
19,986,178
|
|
Gross undiscounted claim liability
|
|
$
|
4,019
|
|
|
$
|
63,712
|
|
|
$
|
36,000
|
|
|
$
|
992,019
|
|
|
$
|
2,295,968
|
|
|
$
|
56,510
|
|
|
$
|
3,448,228
|
|
Discount, gross claim liability
|
|
(481
|
)
|
|
(13,008
|
)
|
|
(3,069
|
)
|
|
(433,709
|
)
|
|
(637,548
|
)
|
|
(4,143
|
)
|
|
(1,091,958
|
)
|
|||||||
Gross claim liability before all subrogation and before reinsurance
|
|
$
|
3,538
|
|
|
$
|
50,704
|
|
|
$
|
32,931
|
|
|
$
|
558,310
|
|
|
$
|
1,658,420
|
|
|
$
|
52,367
|
|
|
$
|
2,356,270
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross RMBS subrogation
(2)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,809,937
|
)
|
|
—
|
|
|
(1,809,937
|
)
|
|||||||
Discount, RMBS subrogation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39,391
|
|
|
—
|
|
|
39,391
|
|
|||||||
Discounted RMBS subrogation, before reinsurance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,770,546
|
)
|
|
—
|
|
|
(1,770,546
|
)
|
|||||||
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross other subrogation
(3)
|
|
—
|
|
|
(10,816
|
)
|
|
—
|
|
|
(136,541
|
)
|
|
(624,654
|
)
|
|
(12,880
|
)
|
|
(784,891
|
)
|
|||||||
Discount, other subrogation
|
|
—
|
|
|
7,318
|
|
|
—
|
|
|
67,008
|
|
|
55,088
|
|
|
3,774
|
|
|
133,188
|
|
|||||||
Discounted other subrogation, before reinsurance
|
|
—
|
|
|
(3,498
|
)
|
|
—
|
|
|
(69,533
|
)
|
|
(569,566
|
)
|
|
(9,106
|
)
|
|
(651,703
|
)
|
|||||||
Gross claim liability, net of all subrogation and discounts, before reinsurance
|
|
$
|
3,538
|
|
|
$
|
47,206
|
|
|
$
|
32,931
|
|
|
$
|
488,777
|
|
|
$
|
(681,692
|
)
|
|
$
|
43,261
|
|
|
$
|
(65,979
|
)
|
Less: Unearned premium revenue
|
|
(943
|
)
|
|
(10,073
|
)
|
|
(5,085
|
)
|
|
(36,365
|
)
|
|
(53,987
|
)
|
|
(209
|
)
|
|
(106,662
|
)
|
|||||||
Plus: Loss expense reserves
|
|
1,369
|
|
|
4,253
|
|
|
2,564
|
|
|
(5,926
|
)
|
|
63,499
|
|
|
—
|
|
|
65,759
|
|
|||||||
Gross loss and loss expense reserves
|
|
$
|
3,964
|
|
|
$
|
41,386
|
|
|
$
|
30,410
|
|
|
$
|
446,486
|
|
|
$
|
(672,180
|
)
|
|
$
|
43,052
|
|
|
$
|
(106,882
|
)
|
Reinsurance recoverable reported on Balance Sheet
(4)
|
|
$
|
367
|
|
|
$
|
7,285
|
|
|
$
|
4,223
|
|
|
$
|
26,096
|
|
|
$
|
(14,838
|
)
|
|
$
|
—
|
|
|
$
|
23,133
|
|
(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 Balance Sheet includes reinsurance recoverables of
$22,623
related to future loss and loss expenses and
$510
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.
|
Year ended December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Discounted RMBS subrogation recovery
(gross of reinsurance) at beginning of year
|
$
|
1,834,387
|
|
|
$
|
1,907,035
|
|
|
$
|
2,829,575
|
|
Impact of sponsor
actions
(1)
|
—
|
|
|
—
|
|
|
(995,000
|
)
|
|||
All other changes
(2)
|
(63,841
|
)
|
|
(72,648
|
)
|
|
72,460
|
|
|||
Discounted RMBS subrogation recovery (gross of reinsurance) at end of year
|
$
|
1,770,546
|
|
|
$
|
1,834,387
|
|
|
$
|
1,907,035
|
|
(1)
|
Sponsor actions include loan repurchases, direct payments to Ambac and other contributions from sponsors. In January 2016, Ambac Assurance settled its RMBS-related disputes and litigation against
|
(2)
|
All other changes which may impact RMBS R&W subrogation recoveries include changes in actual or projected collateral performance, changes in the creditworthiness of a sponsor and/or the projected timing of recoveries. All other changes may also include estimates of potential sponsor settlements that may not have been subject to a sampling approach or have been executed but the settlement amounts have not yet been received. Those that have not been subject to a sampling approach are not material to Ambac’s financial results and therefore are included in this table.
|
Reinsurers
|
|
Percentage Ceded Par
|
|
Net Unsecured Reinsurance Recoverable
(1)
|
||
Assured Guaranty Re Ltd
|
|
60.0%
|
|
$
|
—
|
|
Build America Mutual Assurance Company
(2)
|
|
28.2
|
|
18,815
|
|
|
Assured Guaranty Corporation
|
|
7.1
|
|
—
|
|
|
Sompo Japan Nipponkoa Insurance, Inc.
|
|
4.7
|
|
—
|
|
|
Total
|
|
100%
|
|
$
|
18,815
|
|
(1)
|
Represents reinsurance recoverables on paid and unpaid losses and deferred ceded premiums, net of ceded premium payables due to reinsurers, letters of credit, and collateral posted for the benefit of Ambac Assurance.
|
(2)
|
Build America Mutual Assurance Company has an S&P rating of AA.
|
(1)
|
The insurance intangible asset will be amortized using a level yield method based on par exposure of the related financial guarantee insurance or reinsurance contracts as described in
Note 2. Basis of Presentation and Significant Accounting Policies
. 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 from the amounts provided in the table above.
|
•
|
Paragraph 8 of Statement of Statutory Accounting Principles No. 60 “Financial Guaranty Insurance” allows for a deduction from loss reserves for the time value of money by application of a discount rate equal to the average rate of return on the admitted assets of the financial guaranty insurer as of the date of the computation of the reserve. The discount rate shall be adjusted at the end of each calendar year. Additionally, in accordance with paragraph 13.e of Statutory Accounting
|
•
|
Paragraph 4 of Statement of Statutory Accounting Principles No. 41 “Surplus Notes” (“SSAP 41”) states that proceeds received by the issuer of surplus notes must be in the form of cash or other admitted assets having readily determinable values and liquidity satisfactory to the commissioner of the state of domicile. Under statutory accounting principles, surplus notes issued in conjunction with commutations or the settlement of obligations would be valued at zero upon issuance pursuant to paragraph 4, SSAP 41. OCI has directed the Company to record surplus notes issued in connection with commutations or the settlement of obligations at full par value upon issuance. The surplus notes issued have a claim against surplus senior to the preferred and common shareholders.
|
•
|
Paragraph 35 of Statement of Statutory Accounting Principles No. 43R ”Loan-backed and Structured Securities” states that when an other-than-temporary impairment has occurred, the amount of the other-than-temporary impairment ("OTTI") recognized as a realized loss shall equal the difference between the investment’s amortized cost basis and the present value of cash flows expected to be collected, discounted at the loan-backed or structured security’s effective interest rate. Beginning June 11, 2014, as a result of the amended Segregated Account Rehabilitation Plan, OCI has directed the Company to not evaluate investments in Ambac Assurance insured securities with policies that were allocated to the Segregated Account for OTTI and require all such investments be reported at amortized cost regardless of its NAIC risk designation. This accounting determination was intended to recognize that Ambac Assurance continues to maintain statutory loss reserves without adjustment for the economic effects of its ownership of the insured investment securities, improve transparency to the users of the statutory financial statements and to minimize operational risks. Effective February 12, 2018, with the Segregated Account's exit from Rehabilitation, this prescribed practice is no longer applicable for OTTI evaluations going forward.
|
•
|
OCI has prescribed an accounting practice related to the total liabilities and total surplus of the Segregated Account that are reported as discrete components of Ambac Assurance’s liabilities and surplus in Ambac Assurance’s statutory basis financial statements. Pursuant to this prescribed practice, the results of the Segregated Account were not included in Ambac Assurance’s financial statements if Ambac Assurance’s surplus is (or would be) less than
$100,000
(the “Minimum Surplus Amount”). As long as the surplus as regards to policyholders was not less than the Minimum Surplus Amount, payments by
|
•
|
Wisconsin accounting practices for changes to contingency reserves differ from NAIC SAP. Under NAIC SAP, contributions to and releases from the contingency reserve are recorded via a direct charge or credit to surplus. Under the Wisconsin Administrative Code, contributions to and releases from the contingency reserve are to be recorded through underwriting income. Ambac Assurance received permission from OCI to record contributions to and releases from the contingency reserve, in accordance with NAIC SAP.
|
•
|
Ambac Assurance received permission from OCI to report investment holdings of Ambac Assurance insured securities as a separate invested asset on the balance sheet rather than combined with other bond investments. This permitted practice only impacts the balance sheet classification and has no impact on the valuation of the securities to which it applies or to statutory surplus.
|
•
|
Effective upon the exit of the Segregated Account from rehabilitation and the merger of the Segregated Account with and into Ambac Assurance, Ambac Assurance received permission from OCI to restate its unassigned funds (surplus) balance to
$100,000
with an offsetting reduction to gross paid-in and contributed surplus such that total surplus remains unchanged.
|
•
|
In connection with the AMPS Exchange in 2018, Ambac Assurance received permission from OCI of a permitted practice to account for the exchange of AMPS for
5.1%
surplus notes in a manner that
ensures compliance with certain state insurance regulations that require a minimum surplus level. Accordingly, Ambac Assurance recorded the excess of the consideration paid over the par value of the AMPS as follows: i) first as a reduction to gross paid-in and contributed surplus up to an amount that resulted in a gross paid-in and contributed surplus balance of not less than
$75,000
and ii) for any remaining excess, as a reduction to unassigned surplus.
This permitted practice only impacts the balance sheet classification and has no impact on statutory surplus.
|
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 financial guarantee 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 include fixed income securities, loan receivables, and certain long-term debt of financial guarantee variable interest entities consolidated under the Consolidation Topic of the ASC.
|
|
|
Carrying
Amount |
|
Total Fair
Value |
|
Fair Value Measurements Categorized as:
|
||||||||||||||
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
879,919
|
|
|
$
|
879,919
|
|
|
$
|
—
|
|
|
$
|
879,919
|
|
|
$
|
—
|
|
Corporate obligations
|
|
1,278,122
|
|
|
1,278,122
|
|
|
—
|
|
|
1,278,122
|
|
|
—
|
|
|||||
Foreign obligations
|
|
30,834
|
|
|
30,834
|
|
|
29,922
|
|
|
912
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
94,394
|
|
|
94,394
|
|
|
94,394
|
|
|
—
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
258,607
|
|
|
258,607
|
|
|
—
|
|
|
258,607
|
|
|
—
|
|
|||||
Collateralized debt obligations
|
|
131,356
|
|
|
131,356
|
|
|
—
|
|
|
131,356
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
442,443
|
|
|
442,443
|
|
|
—
|
|
|
370,372
|
|
|
72,071
|
|
|||||
Short term investments
|
|
430,331
|
|
|
430,331
|
|
|
304,880
|
|
|
125,451
|
|
|
—
|
|
|||||
Other investments
(1)
|
|
391,217
|
|
|
367,315
|
|
|
71,108
|
|
|
—
|
|
|
16,266
|
|
|||||
Cash, cash equivalents and restricted cash
|
|
82,494
|
|
|
82,494
|
|
|
52,661
|
|
|
29,833
|
|
|
—
|
|
|||||
Loans
|
|
9,913
|
|
|
11,620
|
|
|
—
|
|
|
—
|
|
|
11,620
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—asset position
|
|
59,468
|
|
|
59,468
|
|
|
—
|
|
|
12,008
|
|
|
47,460
|
|
|||||
Other assets
|
|
4,516
|
|
|
4,516
|
|
|
—
|
|
|
—
|
|
|
4,516
|
|
|||||
Variable interest entity assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate obligations
|
|
2,737,286
|
|
|
2,737,286
|
|
|
—
|
|
|
—
|
|
|
2,737,286
|
|
|||||
Restricted cash
|
|
999
|
|
|
999
|
|
|
999
|
|
|
—
|
|
|
—
|
|
|||||
Loans
|
|
4,287,664
|
|
|
4,287,664
|
|
|
—
|
|
|
—
|
|
|
4,287,664
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps-asset position
|
|
66,302
|
|
|
66,302
|
|
|
—
|
|
|
66,302
|
|
|
—
|
|
|||||
Total financial assets
|
|
$
|
11,185,865
|
|
|
$
|
11,163,670
|
|
|
$
|
553,964
|
|
|
$
|
3,152,882
|
|
|
$
|
7,176,883
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long term debt, including accrued interest
|
|
$
|
3,304,737
|
|
|
$
|
3,259,966
|
|
|
$
|
—
|
|
|
$
|
2,909,272
|
|
|
$
|
350,694
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
|
1,459
|
|
|
1,459
|
|
|
—
|
|
|
—
|
|
|
1,459
|
|
|||||
Interest rate swaps—liability position
|
|
71,861
|
|
|
71,861
|
|
|
—
|
|
|
71,861
|
|
|
—
|
|
|||||
Futures contracts
|
|
3,379
|
|
|
3,379
|
|
|
3,379
|
|
|
—
|
|
|
|
|
|||||
Other contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Liabilities for net financial guarantees written
(2)
|
|
(718,388
|
)
|
|
558,824
|
|
|
—
|
|
|
—
|
|
|
558,824
|
|
|||||
Variable interest entity liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt
|
|
5,268,596
|
|
|
5,268,596
|
|
|
—
|
|
|
5,051,504
|
|
|
217,092
|
|
|||||
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—liability position
|
|
1,712,062
|
|
|
1,712,062
|
|
|
—
|
|
|
1,712,062
|
|
|
—
|
|
|||||
Total financial liabilities
|
|
$
|
9,643,706
|
|
|
$
|
10,876,147
|
|
|
$
|
3,379
|
|
|
$
|
9,744,699
|
|
|
$
|
1,128,069
|
|
|
|
Carrying
Amount |
|
Total Fair
Value |
|
Fair Value Measurements Categorized as:
|
||||||||||||||
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
779,834
|
|
|
$
|
779,834
|
|
|
$
|
—
|
|
|
$
|
779,834
|
|
|
$
|
—
|
|
Corporate obligations
|
|
860,075
|
|
|
860,075
|
|
|
450
|
|
|
859,625
|
|
|
—
|
|
|||||
Foreign obligations
|
|
26,543
|
|
|
26,543
|
|
|
25,615
|
|
|
928
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
85,408
|
|
|
85,408
|
|
|
85,408
|
|
|
—
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
2,251,333
|
|
|
2,251,333
|
|
|
—
|
|
|
1,515,316
|
|
|
736,017
|
|
|||||
Collateralized debt obligations
|
|
51,037
|
|
|
51,037
|
|
|
—
|
|
|
51,037
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
597,942
|
|
|
597,942
|
|
|
—
|
|
|
525,402
|
|
|
72,540
|
|
|||||
Fixed income securities, pledged as collateral:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
U.S. government obligations
|
|
99,719
|
|
|
99,719
|
|
|
99,719
|
|
|
—
|
|
|
—
|
|
|||||
Short term investments
|
|
557,270
|
|
|
557,270
|
|
|
389,299
|
|
|
167,971
|
|
|
—
|
|
|||||
Other investments
(1)
|
|
431,630
|
|
|
413,977
|
|
|
56,498
|
|
|
29,750
|
|
|
17,288
|
|
|||||
Cash and cash equivalents
|
|
623,703
|
|
|
623,703
|
|
|
615,073
|
|
|
8,630
|
|
|
—
|
|
|||||
Loans
|
|
10,358
|
|
|
10,284
|
|
|
—
|
|
|
—
|
|
|
10,284
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—asset position
|
|
73,199
|
|
|
73,199
|
|
|
—
|
|
|
11,825
|
|
|
61,374
|
|
|||||
Other assets
|
|
5,979
|
|
|
5,979
|
|
|
—
|
|
|
—
|
|
|
5,979
|
|
|||||
Variable interest entity assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Corporate obligations
|
|
2,914,145
|
|
|
2,914,145
|
|
|
—
|
|
|
—
|
|
|
2,914,145
|
|
|||||
Restricted cash
|
|
978
|
|
|
978
|
|
|
978
|
|
|
—
|
|
|
—
|
|
|||||
Loans
|
|
11,529,384
|
|
|
11,529,384
|
|
|
—
|
|
|
—
|
|
|
11,529,384
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps-asset position
|
|
54,877
|
|
|
54,877
|
|
|
—
|
|
|
54,877
|
|
|
—
|
|
|||||
Total financial assets
|
|
$
|
20,953,414
|
|
|
$
|
20,935,687
|
|
|
$
|
1,273,040
|
|
|
$
|
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
|
|
|
—
|
|
|
—
|
|
|||||
Other contracts
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
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
$279,941
and
$310,441
as of
December 31, 2018 and 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.
|
December 31, 2017:
|
|
a. Coupon rate
|
2.05%
|
b. Average Life
|
0.65 years
|
c. Yield
|
10.00%
|
December 31, 2018:
|
|
a. Coupon rate
|
5.97%
|
b. Average Life
|
16.29 years
|
c. Yield
|
12.00%
|
|
|
December 31, 2017:
|
|
a. Coupon rate
|
5.97%
|
b. Average Life
|
17.02 years
|
c. Yield
|
12.00%
|
December 31, 2018
|
|
a. Coupon rate
|
2.20%
|
b. Maturity
|
18.93 years
|
c. Yield
|
3.18%
|
|
|
December 31, 2017
|
|
a. Coupon rate
|
0.40%
|
b. Maturity
|
15.28 years
|
c. Yield
|
4.82%
|
Level-3 Financial Assets and Liabilities Accounted for at Fair Value
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
VIE Assets and Liabilities
|
|
|
||||||||||||||||||
Year Ended December 31, 2016
|
|
Investments
|
|
Other
Assets |
|
Derivatives
|
|
Investments
|
|
Loans
|
|
Long-term
Debt |
|
Total
|
||||||||||||||
Balance, beginning of period
|
|
$
|
488,884
|
|
|
$
|
8,696
|
|
|
$
|
(99,192
|
)
|
|
$
|
2,588,556
|
|
|
$
|
11,690,324
|
|
|
$
|
(3,180,170
|
)
|
|
$
|
11,497,098
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Included in earnings
|
|
54,600
|
|
|
(1,314
|
)
|
|
(15,374
|
)
|
|
508,873
|
|
|
1,166,898
|
|
|
(842,748
|
)
|
|
870,935
|
|
|||||||
Included in other comprehensive income
|
|
40,518
|
|
|
—
|
|
|
—
|
|
|
(474,863
|
)
|
|
(1,944,821
|
)
|
|
486,218
|
|
|
(1,892,948
|
)
|
|||||||
Purchases
|
|
99,018
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
99,018
|
|
|||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Settlements
|
|
(28,682
|
)
|
|
—
|
|
|
14,284
|
|
|
—
|
|
|
(253,438
|
)
|
|
216,582
|
|
|
(51,254
|
)
|
|||||||
Transfers into Level 3
|
|
108,365
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
108,365
|
|
|||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
737,898
|
|
|
737,898
|
|
|||||||
Balance, end of period
|
|
$
|
762,703
|
|
|
$
|
7,382
|
|
|
$
|
(100,282
|
)
|
|
$
|
2,622,566
|
|
|
$
|
10,658,963
|
|
|
$
|
(2,582,220
|
)
|
|
$
|
11,369,112
|
|
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date
|
|
$
|
—
|
|
|
$
|
(1,314
|
)
|
|
$
|
(16,351
|
)
|
|
$
|
508,873
|
|
|
$
|
1,166,898
|
|
|
$
|
(842,748
|
)
|
|
$
|
815,358
|
|
Level-3 Investments by Class
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
2018
|
|
2017
|
||||||||||||||||||||
Year Ended December 31,
|
|
Other Asset
Backed Securities |
|
Non-Agency RMBS
|
|
Total
Investments |
|
Other Asset
Backed Securities |
|
Non-Agency RMBS
|
|
Total
Investments |
||||||||||||
Balance, beginning of period
|
|
$
|
72,540
|
|
|
$
|
736,017
|
|
|
$
|
808,557
|
|
|
$
|
65,990
|
|
|
$
|
696,713
|
|
|
$
|
762,703
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Included in earnings
|
|
1,495
|
|
|
34,727
|
|
|
36,222
|
|
|
1,433
|
|
|
63,762
|
|
|
65,195
|
|
||||||
Included in other comprehensive income
|
|
(770
|
)
|
|
(52,138
|
)
|
|
(52,908
|
)
|
|
6,130
|
|
|
262
|
|
|
6,392
|
|
||||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
35,781
|
|
|
35,781
|
|
||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(79,319
|
)
|
|
(79,319
|
)
|
||||||
Settlements
|
|
(1,194
|
)
|
|
(713,297
|
)
|
|
(714,491
|
)
|
|
(1,013
|
)
|
|
(28,950
|
)
|
|
(29,963
|
)
|
||||||
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
47,768
|
|
|
47,768
|
|
||||||
Transfers out of Level 3
|
|
—
|
|
|
(5,309
|
)
|
|
(5,309
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Balance, end of period
|
|
$
|
72,071
|
|
|
$
|
—
|
|
|
$
|
72,071
|
|
|
$
|
72,540
|
|
|
$
|
736,017
|
|
|
$
|
808,557
|
|
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Level-3 Investments by Class
|
|
|
|
|
|
|
||||||
Year Ended December 31, 2016
|
|
Other Asset
Backed Securities |
|
Non-Agency RMBS
|
|
Total
Investments |
||||||
Balance, beginning of period
|
|
$
|
—
|
|
|
$
|
488,884
|
|
|
$
|
488,884
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
||||||
Included in earnings
|
|
1,908
|
|
|
52,692
|
|
|
54,600
|
|
|||
Included in other comprehensive income
|
|
(5,597
|
)
|
|
46,115
|
|
|
40,518
|
|
|||
Purchases
|
|
—
|
|
|
99,018
|
|
|
99,018
|
|
|||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Settlements
|
|
(1,028
|
)
|
|
(27,654
|
)
|
|
(28,682
|
)
|
|||
Transfers into Level 3
|
|
70,707
|
|
|
37,658
|
|
|
108,365
|
|
|||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Balance, end of period
|
|
$
|
65,990
|
|
|
$
|
696,713
|
|
|
$
|
762,703
|
|
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Level-3 Derivatives by Class
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
2018
|
|
2017
|
||||||||||||||||||||
Year Ended December 31,
|
|
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
|
|
(8,637
|
)
|
|
(505
|
)
|
|
(9,142
|
)
|
|
46,475
|
|
|
16,372
|
|
|
62,847
|
|
||||||
Included in other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Settlements
|
|
(5,277
|
)
|
|
(388
|
)
|
|
(5,665
|
)
|
|
99,832
|
|
|
(1,589
|
)
|
|
98,243
|
|
||||||
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Balance, end of period
|
|
$
|
47,460
|
|
|
$
|
(1,459
|
)
|
|
$
|
46,001
|
|
|
$
|
61,374
|
|
|
$
|
(566
|
)
|
|
$
|
60,808
|
|
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
|
|
$
|
(8,637
|
)
|
|
$
|
(893
|
)
|
|
$
|
(9,530
|
)
|
|
$
|
6,716
|
|
|
$
|
2,197
|
|
|
$
|
8,913
|
|
Level-3 Derivatives by Class
|
|
|
|
|
|
|
||||||
Year Ended December 31, 2016
|
|
Interest
Rate Swaps |
|
Credit
Derivatives |
|
Total
Derivatives |
||||||
Balance, beginning of period
|
|
$
|
(64,649
|
)
|
|
$
|
(34,543
|
)
|
|
$
|
(99,192
|
)
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
||||||
Included in earnings
|
|
(35,480
|
)
|
|
20,106
|
|
|
(15,374
|
)
|
|||
Included in other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Settlements
|
|
15,196
|
|
|
(912
|
)
|
|
14,284
|
|
|||
Transfers into Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Balance, end of period
|
|
$
|
(84,933
|
)
|
|
$
|
(15,349
|
)
|
|
$
|
(100,282
|
)
|
The amount of total gains/(losses) included in earnings attributable to the change in unrealized gains or losses relating to assets and liabilities still held at the reporting date
|
|
$
|
(35,480
|
)
|
|
$
|
19,129
|
|
|
$
|
(16,351
|
)
|
|
|
Net
Investment
Income
|
|
Net Gains
(Losses) on Derivative Contracts |
|
Income (Loss)
on Variable
Interest
Entities
|
|
Other
Income (Expense) |
||||||||
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
||||||||
Total gains (losses) included in earnings for the period
|
|
$
|
36,222
|
|
|
$
|
(9,142
|
)
|
|
$
|
3,966
|
|
|
$
|
(1,463
|
)
|
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date
|
|
—
|
|
|
(9,530
|
)
|
|
118
|
|
|
(1,463
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
||||||||
Total gains (losses) included in earnings for the period
|
|
$
|
65,195
|
|
|
$
|
62,847
|
|
|
$
|
655,956
|
|
|
$
|
(1,403
|
)
|
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date
|
|
—
|
|
|
8,913
|
|
|
654,753
|
|
|
(1,403
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2016
|
|
|
|
|
|
|
|
|
||||||||
Total gains (losses) included in earnings for the period
|
|
$
|
54,600
|
|
|
$
|
(15,374
|
)
|
|
$
|
833,023
|
|
|
$
|
(1,314
|
)
|
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date
|
|
—
|
|
|
(16,351
|
)
|
|
833,023
|
|
|
(1,314
|
)
|
|
|
Amortized
Cost |
|
Gross
Unrealized Gains |
|
Gross
Unrealized Losses |
|
Estimated
Fair Value |
|
Non-Credit Other-
than-temporary Impairments (1) |
||||||||||
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
882,631
|
|
|
$
|
14,364
|
|
|
$
|
17,076
|
|
|
$
|
879,919
|
|
|
$
|
5
|
|
Corporate obligations
(2)
|
|
1,288,882
|
|
|
6,444
|
|
|
17,204
|
|
|
1,278,122
|
|
|
—
|
|
|||||
Foreign obligations
|
|
30,496
|
|
|
399
|
|
|
61
|
|
|
30,834
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
93,636
|
|
|
1,371
|
|
|
613
|
|
|
94,394
|
|
|
|
|
|||||
Residential mortgage-backed securities
|
|
221,825
|
|
|
37,575
|
|
|
793
|
|
|
258,607
|
|
|
27
|
|
|||||
Collateralized debt obligations
|
|
133,075
|
|
|
8
|
|
|
1,727
|
|
|
131,356
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
370,199
|
|
|
72,868
|
|
|
624
|
|
|
442,443
|
|
|
—
|
|
|||||
|
|
3,020,744
|
|
|
133,029
|
|
|
38,098
|
|
|
3,115,675
|
|
|
32
|
|
|||||
Short-term
|
|
430,405
|
|
|
23
|
|
|
97
|
|
|
430,331
|
|
|
—
|
|
|||||
Total available-for-sale investments
|
|
$
|
3,451,149
|
|
|
$
|
133,052
|
|
|
$
|
38,195
|
|
|
$
|
3,546,006
|
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
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
December 31, 2018 and 2017
.
|
(2)
|
Includes Ambac's holdings of the secured notes issued by Ambac LSNI in connection with the Rehabilitation Exist Transactions.
|
|
|
Amortized
Cost |
|
Estimated
Fair Value |
||||
Due in one year or less
|
|
$
|
508,478
|
|
|
$
|
508,138
|
|
Due after one year through five years
|
|
1,094,712
|
|
|
1,093,945
|
|
||
Due after five years through ten years
|
|
301,303
|
|
|
296,305
|
|
||
Due after ten years
|
|
821,557
|
|
|
815,212
|
|
||
|
|
2,726,050
|
|
|
2,713,600
|
|
||
Residential mortgage-backed securities
|
|
221,825
|
|
|
258,607
|
|
||
Collateralized debt obligations
|
|
133,075
|
|
|
131,356
|
|
||
Other asset-backed securities
|
|
370,199
|
|
|
442,443
|
|
||
Total
|
|
$
|
3,451,149
|
|
|
$
|
3,546,006
|
|
|
|
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, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Municipal obligations
|
|
$
|
537,904
|
|
|
$
|
15,878
|
|
|
$
|
28,533
|
|
|
$
|
1,198
|
|
|
$
|
566,437
|
|
|
$
|
17,076
|
|
Corporate obligations
|
|
306,506
|
|
|
8,634
|
|
|
190,273
|
|
|
8,570
|
|
|
496,779
|
|
|
17,204
|
|
||||||
Foreign obligations
|
|
1,161
|
|
|
1
|
|
|
5,163
|
|
|
60
|
|
|
6,324
|
|
|
61
|
|
||||||
U.S. government obligations
|
|
5,643
|
|
|
135
|
|
|
58,495
|
|
|
478
|
|
|
64,138
|
|
|
613
|
|
||||||
Residential mortgage-backed securities
|
|
34,852
|
|
|
793
|
|
|
—
|
|
|
—
|
|
|
34,852
|
|
|
793
|
|
||||||
Collateralized debt obligations
|
|
123,848
|
|
|
1,727
|
|
|
—
|
|
|
—
|
|
|
123,848
|
|
|
1,727
|
|
||||||
Other asset-backed securities
|
|
13,813
|
|
|
33
|
|
|
77,479
|
|
|
591
|
|
|
91,292
|
|
|
624
|
|
||||||
|
|
1,023,727
|
|
|
27,201
|
|
|
359,943
|
|
|
10,897
|
|
|
1,383,670
|
|
|
38,098
|
|
||||||
Short-term
|
|
115,374
|
|
|
97
|
|
|
—
|
|
|
—
|
|
|
115,374
|
|
|
97
|
|
||||||
Total
|
|
$
|
1,139,101
|
|
|
$
|
27,298
|
|
|
$
|
359,943
|
|
|
$
|
10,897
|
|
|
$
|
1,499,044
|
|
|
$
|
38,195
|
|
|
|
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
|
|
$
|
1,988,778
|
|
|
$
|
86,480
|
|
|
$
|
633,662
|
|
|
$
|
21,563
|
|
|
$
|
2,622,440
|
|
|
$
|
108,043
|
|
Year Ended
December 31,
|
|
2018
|
|
2017
|
|
2016
|
||||||
Gross realized gains on securities
|
|
$
|
111,417
|
|
|
$
|
29,080
|
|
|
$
|
17,344
|
|
Gross realized losses on securities
|
|
(6,511
|
)
|
|
(18,945
|
)
|
|
(8,239
|
)
|
|||
Foreign exchange (losses) gains
|
|
6,718
|
|
|
(4,769
|
)
|
|
30,179
|
|
|||
Net realized gains
|
|
$
|
111,624
|
|
|
$
|
5,366
|
|
|
$
|
39,284
|
|
Net other-than-temporary impairments
(1)
|
|
$
|
(3,238
|
)
|
|
$
|
(20,171
|
)
|
|
$
|
(21,819
|
)
|
(1)
|
Other-than-temporary impairments exclude impairment amounts recorded in other comprehensive income under ASC Paragraph 320-10-65-1, which comprise non-credit related amounts on securities that are credit impaired but which management does not intend to sell and it is not more likely than not that the company will be required to sell before recovery of the amortized cost basis.
|
Year Ended
December 31,
|
|
2018
|
|
2017
|
|
2016
|
||||||
Balance, beginning of period
|
|
$
|
67,085
|
|
|
$
|
52,070
|
|
|
$
|
31,176
|
|
Additions for credit impairments recognized on:
|
|
|
|
|
|
|
||||||
Securities not previously impaired
|
|
1,210
|
|
|
3,310
|
|
|
3,572
|
|
|||
Securities previously impaired
|
|
226
|
|
|
11,705
|
|
|
17,322
|
|
|||
Reductions for credit impairments previously recognized on:
|
|
|
|
|
|
|
||||||
Securities that matured or were sold during the period
|
|
(56,067
|
)
|
|
—
|
|
|
—
|
|
|||
Balance, end of period
|
|
$
|
12,454
|
|
|
$
|
67,085
|
|
|
$
|
52,070
|
|
|
|
Municipal
obligations |
|
Corporate
obligations (3) |
|
Mortgage
and asset- backed securities |
|
Total
|
|
Weighted
Average Underlying Rating (1) |
||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Ambac Assurance Corporation
(2)
|
|
$
|
833,241
|
|
|
$
|
656,473
|
|
|
$
|
599,185
|
|
|
$
|
2,088,899
|
|
|
CC
|
National Public Finance Guarantee Corporation
|
|
15,600
|
|
|
—
|
|
|
—
|
|
|
15,600
|
|
|
BBB-
|
||||
Total
|
|
$
|
848,841
|
|
|
$
|
656,473
|
|
|
$
|
599,185
|
|
|
$
|
2,104,499
|
|
|
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
$144,672
and
$170,280
at
December 31, 2018 and 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.
|
Class of Funds
|
|
December 31, 2018
|
|
December 31, 2017
|
|
Redemption frequency
|
|
Redemption notice period
|
||||
Real estate properties
(1)
|
|
$
|
16,123
|
|
|
$
|
33,154
|
|
|
quarterly
|
|
10 business days
|
Diversified hedge fund strategies
(2)
|
|
—
|
|
|
53,054
|
|
|
semi-monthly
|
|
15 - 30 days
|
||
Interest rate products
(3) (7)
|
|
177,357
|
|
|
136,603
|
|
|
daily, weekly or monthly
|
|
0 - 30 days
|
||
Illiquid investments
(4)
|
|
84,297
|
|
|
67,787
|
|
|
quarterly
|
|
180 days
|
||
Insurance-linked investments
(5)
|
|
29,318
|
|
|
22,666
|
|
|
quarterly
|
|
90-120 days
|
||
Equity market investments
(6) (7)
|
|
43,954
|
|
|
53,675
|
|
|
daily
|
|
0 days
|
||
Total equity investments in pooled funds
|
|
$
|
351,049
|
|
|
$
|
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. Ambac sold its position in this fund in 2018.
|
(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 were not able to 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
$27,154
at
December 31, 2018
and
$2,823
at
December 31, 2017
and equity market investments include
$43,954
at
December 31, 2018
and
$53,675
at
December 31, 2017
that have readily determinable fair values priced through pricing vendors.
|
Year Ended
December 31,
|
|
2018
|
|
2017
|
|
2016
|
||||||
Fixed income securities
|
|
$
|
265,380
|
|
|
$
|
337,454
|
|
|
$
|
288,554
|
|
Short-term investments
|
|
11,014
|
|
|
7,898
|
|
|
1,505
|
|
|||
Loans
|
|
730
|
|
|
520
|
|
|
337
|
|
|||
Investment expense
|
|
(6,599
|
)
|
|
(8,098
|
)
|
|
(9,347
|
)
|
|||
Securities available-for-sale and short-term
|
|
270,525
|
|
|
337,774
|
|
|
281,049
|
|
|||
Other investments
|
|
2,192
|
|
|
23,179
|
|
|
32,318
|
|
|||
Total net investment income
|
|
$
|
272,717
|
|
|
$
|
360,953
|
|
|
$
|
313,367
|
|
Year Ended
December 31,
|
|
2018
|
|
2017
|
|
2016
|
||||||
Net gains (losses) recognized during the period on trading securities
|
|
$
|
(3,035
|
)
|
|
$
|
18,242
|
|
|
$
|
27,654
|
|
Less: net gains (losses) recognized during the reporting period on trading securities sold during the period
|
|
615
|
|
|
4,854
|
|
|
7,474
|
|
|||
Unrealized gains (losses) recognized during the reporting period on trading securities still held at the reporting date
|
|
$
|
(3,650
|
)
|
|
$
|
13,388
|
|
|
$
|
20,180
|
|
|
Gross
Amounts of Recognized Assets / Liabilities |
|
Gross
Amounts Offset in the Consolidated Balance Sheet |
|
Net Amounts
of Assets/ Liabilities Presented in the Consolidated Balance Sheet |
|
Gross Amount
of Collateral Received / Pledged not Offset in the Consolidated Balance Sheet |
|
Net Amount
|
||||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
59,768
|
|
|
$
|
300
|
|
|
$
|
59,468
|
|
|
$
|
—
|
|
|
$
|
59,468
|
|
Total non-VIE derivative assets
|
$
|
59,768
|
|
|
$
|
300
|
|
|
$
|
59,468
|
|
|
$
|
—
|
|
|
$
|
59,468
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
$
|
1,459
|
|
|
$
|
—
|
|
|
$
|
1,459
|
|
|
$
|
—
|
|
|
$
|
1,459
|
|
Interest rate swaps
|
72,161
|
|
|
300
|
|
|
71,861
|
|
|
67,126
|
|
|
4,735
|
|
|||||
Futures contracts
|
3,379
|
|
|
—
|
|
|
3,379
|
|
|
3,379
|
|
|
—
|
|
|||||
Total non-VIE derivative liabilities
|
$
|
76,999
|
|
|
$
|
300
|
|
|
$
|
76,699
|
|
|
$
|
70,505
|
|
|
$
|
6,194
|
|
Variable Interest Entities Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps
|
$
|
66,302
|
|
|
$
|
—
|
|
|
$
|
66,302
|
|
|
$
|
—
|
|
|
$
|
66,302
|
|
Total VIE derivative assets
|
$
|
66,302
|
|
|
$
|
—
|
|
|
$
|
66,302
|
|
|
$
|
—
|
|
|
$
|
66,302
|
|
Variable Interest Entities Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
1,712,062
|
|
|
$
|
—
|
|
|
$
|
1,712,062
|
|
|
$
|
—
|
|
|
$
|
1,712,062
|
|
Total VIE derivative liabilities
|
$
|
1,712,062
|
|
|
$
|
—
|
|
|
$
|
1,712,062
|
|
|
$
|
—
|
|
|
$
|
1,712,062
|
|
|
Gross
Amounts of Recognized Assets / Liabilities |
|
Gross
Amounts Offset in the Consolidated Balance Sheet |
|
Net Amounts
of Assets/ Liabilities Presented in the Consolidated Balance Sheet |
|
Gross Amount
of Collateral Received / Pledged not Offset in the Consolidated Balance Sheet |
|
Net Amount
|
||||||||||
December 31, 2017:
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
73,826
|
|
|
$
|
627
|
|
|
$
|
73,199
|
|
|
$
|
—
|
|
|
$
|
73,199
|
|
Total non-VIE derivative assets
|
$
|
73,826
|
|
|
$
|
627
|
|
|
$
|
73,199
|
|
|
$
|
—
|
|
|
$
|
73,199
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
$
|
566
|
|
|
$
|
—
|
|
|
$
|
566
|
|
|
$
|
—
|
|
|
$
|
566
|
|
Interest rate swaps
|
81,495
|
|
|
627
|
|
|
80,868
|
|
|
79,912
|
|
|
956
|
|
|||||
Futures contracts
|
1,348
|
|
|
—
|
|
|
1,348
|
|
|
1,348
|
|
|
—
|
|
|||||
Total non-VIE derivative liabilities
|
$
|
83,409
|
|
|
$
|
627
|
|
|
$
|
82,782
|
|
|
$
|
81,260
|
|
|
$
|
1,522
|
|
Variable Interest Entities Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps
|
$
|
54,877
|
|
|
$
|
—
|
|
|
$
|
54,877
|
|
|
$
|
—
|
|
|
$
|
54,877
|
|
Total VIE derivative assets
|
$
|
54,877
|
|
|
$
|
—
|
|
|
$
|
54,877
|
|
|
$
|
—
|
|
|
$
|
54,877
|
|
Variable Interest Entities Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
2,205,264
|
|
|
$
|
—
|
|
|
$
|
2,205,264
|
|
|
$
|
—
|
|
|
$
|
2,205,264
|
|
Total VIE derivative liabilities
|
$
|
2,205,264
|
|
|
$
|
—
|
|
|
$
|
2,205,264
|
|
|
$
|
—
|
|
|
$
|
2,205,264
|
|
|
Location of Gain (Loss) Recognized
in Consolidated Statements of Total Comprehensive Income (Loss) |
|
Amount of Gain (Loss) Recognized in Consolidated Statement of Total Comprehensive Income (Loss) –
Year Ended December 31, |
||||||||||||
|
|
2018
|
|
2017
|
|
2016
|
|||||||||
Non-VIE derivatives:
|
|
|
|
|
|
|
|
|
|
||||||
Change in fair value of credit derivatives:
|
|
|
|
|
|
|
|
|
|
||||||
Realized gains and other settlements
|
|
|
|
|
$
|
388
|
|
|
$
|
1,589
|
|
|
$
|
912
|
|
Unrealized gains (losses)
|
|
|
|
|
(893
|
)
|
|
14,783
|
|
|
19,194
|
|
|||
Credit derivatives
|
Net gains (losses) on derivative contracts
|
|
(505
|
)
|
|
16,372
|
|
|
20,106
|
|
|||||
Interest rate swaps
|
Net gains (losses) on derivative contracts
|
|
600
|
|
|
48,870
|
|
|
(50,082
|
)
|
|||||
Futures contracts
|
Net gains (losses) on derivative contracts
|
|
6,895
|
|
|
10,695
|
|
|
(191
|
)
|
|||||
Total non-VIE derivatives
|
|
|
|
|
6,990
|
|
|
75,937
|
|
|
(30,167
|
)
|
|||
Variable Interest Entities:
|
|
|
|
|
|
|
|
|
|
||||||
Currency swaps
|
Income (loss) on variable interest entities
|
|
11,425
|
|
|
(25,530
|
)
|
|
58,990
|
|
|||||
Interest rate swaps
|
Income (loss) on variable interest entities
|
|
493,203
|
|
|
(126,664
|
)
|
|
(574,554
|
)
|
|||||
Total Variable Interest Entities
|
|
|
|
|
504,628
|
|
|
(152,194
|
)
|
|
(515,564
|
)
|
|||
Total derivative contracts
|
|
|
|
|
$
|
511,113
|
|
|
$
|
(59,885
|
)
|
|
$
|
(525,625
|
)
|
Ambac Rating
December 31,
|
|
2018
|
|
2017
|
||||
AAA
|
|
$
|
—
|
|
|
$
|
—
|
|
AA
|
|
295,342
|
|
|
175,765
|
|
||
A
|
|
—
|
|
|
—
|
|
||
BBB
(1)
|
|
—
|
|
|
150,125
|
|
||
Below investment grade
(2)
|
|
—
|
|
|
—
|
|
||
Total
|
|
$
|
295,342
|
|
|
$
|
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 - December 31,
|
||||||
Type of Derivative
|
2018
|
|
2017
|
||||
Interest rate swaps—receive-fixed/pay-variable
|
$
|
493,368
|
|
|
$
|
379,497
|
|
Interest rate swaps—pay-fixed/receive-variable
|
1,121,532
|
|
|
1,428,264
|
|
||
US Treasury futures contracts—short
|
1,760,000
|
|
|
1,655,000
|
|
|
Notional - December 31,
|
||||||
Type of VIE Derivative
|
2018
|
|
2017
|
||||
Interest rate swaps—receive-fixed/pay-variable
|
$
|
1,399,532
|
|
|
$
|
1,483,491
|
|
Interest rate swaps—pay-fixed/receive-variable
|
1,176,748
|
|
|
2,479,244
|
|
||
Currency swaps
|
344,992
|
|
|
394,541
|
|
||
Credit derivatives
|
10,254
|
|
|
12,100
|
|
December 31,
|
|
2018
|
|
2017
|
||||
Ambac Assurance:
|
|
|
|
|
||||
5.1% surplus notes due 2020
|
|
$
|
487,110
|
|
|
$
|
668,667
|
|
5.1% junior surplus notes due 2020
|
|
249,785
|
|
|
249,036
|
|
||
Ambac Note
|
|
1,940,289
|
|
|
—
|
|
||
Tier 2 Notes
|
|
251,745
|
|
|
—
|
|
||
Secured borrowing
|
|
—
|
|
|
73,993
|
|
||
Ambac Assurance long-term debt
|
|
$
|
2,928,929
|
|
|
$
|
991,696
|
|
|
|
|
|
|
||||
Variable Interest Entities long-term debt
|
|
$
|
5,268,596
|
|
|
$
|
12,160,544
|
|
•
|
Par value at
December 31, 2018 and 2017
includes
$16,644
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 (
$1,661
current par value at
December 31, 2018
) are reducing 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
$3,593
and
$3,799
during the
year ended December 31, 2018 and 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
December 31, 2018 and 2017
includes
$350,000
face amount of a junior surplus note originally issued to Ambac pursuant to Ambac's Chapter 11 Reorganization Plan in accordance with the Mediation Agreement dated
|
Jurisdiction
|
Tax Year
|
United States
|
2010
|
New York State
|
2013
|
New York City
|
2014
|
United Kingdom
|
2015
|
Italy
|
2014
|
Year Ended
December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
U.S.
|
$
|
264,089
|
|
|
$
|
(450,978
|
)
|
|
$
|
77,161
|
|
Foreign
|
8,444
|
|
|
166,727
|
|
|
27,865
|
|
|||
Total
|
$
|
272,533
|
|
|
$
|
(284,251
|
)
|
|
$
|
105,026
|
|
Year Ended
December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Current taxes
|
|
|
|
|
|
||||||
U. S. federal
|
$
|
(1,902
|
)
|
|
$
|
(29,581
|
)
|
|
$
|
3,934
|
|
U.S. state and local
|
2,480
|
|
|
2,013
|
|
|
707
|
|
|||
Foreign
|
(835
|
)
|
|
40,613
|
|
|
26,088
|
|
|||
Total current taxes
|
(257
|
)
|
|
13,045
|
|
|
30,729
|
|
|||
Deferred taxes
|
|
|
|
|
|
||||||
Foreign
|
5,391
|
|
|
31,419
|
|
|
(20
|
)
|
|||
Total deferred taxes
|
$
|
5,391
|
|
|
$
|
31,419
|
|
|
$
|
(20
|
)
|
Provision for income taxes
|
$
|
5,134
|
|
|
$
|
44,464
|
|
|
$
|
30,709
|
|
Year Ended
December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Total income taxes charged to net income
|
$
|
5,134
|
|
|
$
|
44,464
|
|
|
$
|
30,709
|
|
Income taxes charged (credited) to stockholders’ equity:
|
|
|
|
|
|
||||||
Unrealized gains (losses) on investment securities
|
11,832
|
|
|
(30,838
|
)
|
|
41,602
|
|
|||
Unrealized gains (losses) on foreign currency translations
|
—
|
|
|
25,776
|
|
|
(58,527
|
)
|
|||
Change in retirement benefits
|
(371
|
)
|
|
446
|
|
|
3,278
|
|
|||
Credit Risk Changes to Fair Value Options
|
161
|
|
|
—
|
|
|
—
|
|
|||
Valuation allowance to equity
|
(9,095
|
)
|
|
4,616
|
|
|
13,647
|
|
|||
Total charged to stockholders’ equity:
|
2,527
|
|
|
—
|
|
|
—
|
|
|||
Total effect of income taxes
|
$
|
7,661
|
|
|
$
|
44,464
|
|
|
$
|
30,709
|
|
|
2018
|
|
2017
|
|
2016
|
|||||||||||||||
Year Ended December 31,
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|||||||||
Tax on income from continuing operations at statutory rate
|
$
|
57,232
|
|
|
21.0
|
%
|
|
$
|
(99,488
|
)
|
|
35.0
|
%
|
|
$
|
36,759
|
|
|
35.0
|
%
|
Changes in expected tax resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Tax-exempt interest
|
(6,850
|
)
|
|
(2.5
|
)%
|
|
(6,004
|
)
|
|
2.1
|
%
|
|
(1,561
|
)
|
|
(1.5
|
)%
|
|||
Foreign taxes
|
10,494
|
|
|
3.9
|
%
|
|
(17,742
|
)
|
|
6.2
|
%
|
|
26,183
|
|
|
24.9
|
%
|
|||
Substantiation adjustment
|
(60,077
|
)
|
|
(22.0
|
)%
|
|
36,124
|
|
|
(12.7
|
)%
|
|
(171,687
|
)
|
|
(163.5
|
)%
|
|||
Valuation allowance
|
5,278
|
|
|
1.9
|
%
|
|
127,675
|
|
|
(44.9
|
)%
|
|
139,584
|
|
|
132.9
|
%
|
|||
Change in Tax Law
|
(1,902
|
)
|
|
(0.7
|
)%
|
|
1,886
|
|
|
(0.7
|
)%
|
|
—
|
|
|
—
|
%
|
|||
Other, net
|
959
|
|
|
0.4
|
%
|
|
2,013
|
|
|
(0.7
|
)%
|
|
1,431
|
|
|
1.4
|
%
|
|||
Tax expense on income from continuing operations
|
$
|
5,134
|
|
|
1.9
|
%
|
|
$
|
44,464
|
|
|
(15.7
|
)%
|
|
$
|
30,709
|
|
|
29.2
|
%
|
Year Ended
December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Balance, beginning of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Increases related to prior year tax positions
|
—
|
|
|
—
|
|
|
—
|
|
|||
Decreases related to prior year tax positions
|
—
|
|
|
—
|
|
|
—
|
|
|||
Balance, end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
December 31,
|
2018
|
|
2017
|
||||
Deferred tax liabilities:
|
|
|
|
||||
Insurance intangible
|
$
|
150,975
|
|
|
$
|
177,864
|
|
Debentures
|
—
|
|
|
28,387
|
|
||
Variable interest entities
|
19,051
|
|
|
22,817
|
|
||
Investments
|
26,145
|
|
|
28,798
|
|
||
Unearned premiums and credit fees
|
48,121
|
|
|
51,485
|
|
||
Other
|
7,649
|
|
|
9,402
|
|
||
Total deferred tax liabilities
|
251,941
|
|
|
318,753
|
|
||
Deferred tax assets:
|
|
|
|
||||
Net operating loss and capital carryforward
|
718,978
|
|
|
775,917
|
|
||
Loss reserves
|
227,401
|
|
|
264,624
|
|
||
Debentures
|
22,564
|
|
|
—
|
|
||
Compensation
|
9,500
|
|
|
5,585
|
|
||
Other
|
1,818
|
|
|
2,140
|
|
||
Subtotal deferred tax assets
|
980,261
|
|
|
1,048,266
|
|
||
Valuation allowance
|
768,450
|
|
|
763,172
|
|
||
Total deferred tax assets
|
211,811
|
|
|
285,094
|
|
||
Net deferred tax liability
|
$
|
40,130
|
|
|
$
|
33,659
|
|
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%
|
2019
|
|
$
|
364
|
|
2020
|
|
364
|
|
|
2021
|
|
377
|
|
|
2022
|
|
404
|
|
|
2023
|
|
429
|
|
|
2024-2028
|
|
2,464
|
|
|
Total
|
|
$
|
4,402
|
|
Year Ended
December 31,
|
2018
|
|
2017
(1)
|
|
2016
|
||||||
Stock options
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted stock units
|
6,234
|
|
|
1,640
|
|
|
3,463
|
|
|||
Performance awards
(2) (3)
|
5,620
|
|
|
2,653
|
|
|
1,790
|
|
|||
Total stock-based compensation
|
$
|
11,854
|
|
|
$
|
4,293
|
|
|
$
|
5,253
|
|
Total stock-based compensation (after-tax)
|
$
|
11,854
|
|
|
$
|
4,293
|
|
|
$
|
5,194
|
|
(1)
|
As discussed in
Note 2. Basis of Presentation and Significant Accounting Policies
, we adopted ASU 2016-09 as of January 1, 2017. One of the provisions of this ASU requires entities to make an accounting policy election with respect to forfeitures of share-based payment awards. We elected to account for forfeitures as they occur and adopted this provision of ASU 2016-09 using a modified retrospective approach resulting in recording a cumulative-effect adjustment to equity of
$137
.
|
(2)
|
Represents expense related to performance stock units portion of performance awards. Certain performance awards are split evenly between performance stock units and cash. Cash based compensation expense related to performance awards granted to US employees was
$1,453
,
$1,565
and
$1,790
for the years ended
December 31, 2018, 2017 and 2016
, respectively.
|
(3)
|
A performance award issued to Ambac's former Chief Executive Officer in the form of performance stock units was expensed during 2018.
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Aggregate
Intrinsic
Value
|
|
Weighted
Average
Remaining
Contractual
Life
(in years)
|
|||||
Outstanding at beginning of period
|
126,667
|
|
|
$
|
24.03
|
|
|
|
|
|
||
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|||
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|||
Forfeited or expired
|
(110,000
|
)
|
|
24.55
|
|
|
|
|
|
|||
Outstanding at end of period
|
16,667
|
|
|
$
|
20.63
|
|
|
$
|
—
|
|
|
|
Exercisable
|
16,667
|
|
|
$
|
20.63
|
|
|
$
|
—
|
|
|
1.97
|
(1)
|
When restricted stock unit awards issued by Ambac become taxable compensation to employees, shares may be withheld to cover the employee’s withholding taxes. For the
year ended December 31, 2018
, Ambac purchased
22,929
of shares from employees that settled restricted stock units to meet the required tax withholdings.
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|||
Outstanding at beginning of period
|
322,943
|
|
|
$
|
21.06
|
|
Granted
(1)
|
302,002
|
|
|
15.09
|
|
|
Delivered
(2)
|
(121,690
|
)
|
|
24.63
|
|
|
Forfeited
(1)
|
(15,573
|
)
|
|
18.20
|
|
|
Performance adjustment
(3)
|
29,317
|
|
|
24.66
|
|
|
Outstanding at end of period
|
516,999
|
|
|
$
|
17.02
|
|
(1)
|
Represents performance share units at
100%
of units granted for LTIP Awards.
|
(2)
|
Reflects the number of performance shares attributable to the performance goals attained over the completed performance period and for which service conditions have been met.
When performance stock unit awards issued by Ambac become taxable compensation to employees, shares may be withheld to cover the employee’s withholding taxes. For the
year ended December 31, 2018
, Ambac purchased
50,297
of shares from employees that settled performance based restricted stock units to meet the required tax withholdings.
|
(3)
|
Represents the increase (decrease) in shares issued for awards granted in 2015 based upon the attainment of performance metrics at the end of the performance period.
|
2019
|
|
$
|
5,651
|
|
2020
|
|
2,101
|
|
|
2021
|
|
1,562
|
|
|
2022
|
|
1,565
|
|
|
2023
|
|
1,568
|
|
|
Thereafter
|
|
10,167
|
|
|
Total
|
|
$
|
22,614
|
|
•
|
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. First Franklin Financial Corporation, Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Inc., Merrill Lynch Mortgage Lending, Inc., and Merrill Lynch Mortgage Investors, Inc. (Supreme Court of the State of New York, County of New York, Case No. 651217/2012, filed April 16, 2012). Ambac Assurance has asserted claims for breach of contract, fraudulent inducement, indemnification, reimbursement and has requested the repurchase of loans that breach representations and warranties as required under the contracts. On July 18, 2013 the court granted in part and denied in part Defendants’ motion to dismiss (filed on July 13, 2012). The court dismissed Ambac Assurance’s claims for indemnification and limited Ambac Assurance’s claim for breach of loan-level warranties to the repurchase protocol, but denied dismissal of Ambac Assurance’s other contractual claims and fraudulent inducement claim. Discovery is ongoing.
|
•
|
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Countrywide Securities Corp., Countrywide Financial Corp. (a.k.a. Bank of America Home Loans) and Bank of America Corp. (Supreme Court of the State of New York, County of New York, Case No. 651612/2010, filed on September 28, 2010). Ambac Assurance’s Second Amended Complaint, filed on May 28, 2013, asserted claims against Countrywide and Bank of America (as successor to Countrywide’s liabilities) for breach of contract, fraudulent inducement, indemnification and reimbursement, and breach of representations and warranties. Ambac Assurance also requested the repurchase of loans that breach representations and warranties as required under the contracts. On May 1, 2015, the parties filed motions for partial summary judgment regarding Ambac Assurance’s claims against Countrywide (primary-liability claims) and its secondary-liability claims against Bank of America. In decisions issued on October 27, 2015, the court granted in part and denied in part the parties’ respective summary judgment motions regarding Ambac Assurance’s claims against Countrywide and granted Ambac Assurance’s motion for partial summary judgment on its secondary-liability claims against Bank of America and denied Bank of America’s motion for summary judgment regarding this claim. Each party appealed certain aspects of the court’s decisions to the New York Appellate Division, First Department. On May 16, 2017, the First Department issued rulings in both appeals, reversing a number of rulings that the trial court had made and affirming other rulings. On June 15,
|
•
|
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. Nomura Credit & Capital, Inc. and Nomura Holding America Inc. (Supreme Court of the State of New York, County of New York, Case No. 651359/2013, filed on April 15, 2013). Ambac Assurance has asserted claims for material breach of contract and has requested the repurchase of loans that breach representations and warranties under the contracts. Ambac Assurance also asserted alter ego claims against Nomura Holding America, Inc. Defendants filed a motion to dismiss on July 12, 2013. On September 22, 2014, plaintiffs filed an amended complaint which added (in addition to the claims previously asserted) a claim for fraudulent inducement. On October 31, 2014 defendants filed a motion to strike the amended complaint and on November 10, 2014 also filed a motion to dismiss the fraudulent-inducement claim. On June 3, 2015, the court denied defendants’ July 2013 motion to dismiss Ambac Assurance’s claim for breaches of representations and warranties, but granted the defendants’ motion to dismiss Ambac Assurance’s claims for breach of the repurchase protocol and for alter ego liability against Nomura Holding. On December 29, 2016, the court denied Nomura’s motion to strike Ambac Assurance’s amended complaint and its motion to dismiss the fraudulent-inducement claim. Nomura appealed the June 2015 decision to the extent it denied its motion to dismiss, filing its opening appellate brief on March 23, 2017. On December 7, 2017, the First Department affirmed the trial court’s June 3, 2015 decision. Discovery is ongoing.
|
•
|
Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation v. Countrywide Home Loans, Inc. (Supreme Court of the State of New York, County of New York, Case No. 652321/2015, filed on June 30, 2015). On June 30, 2015, Ambac Assurance and the Segregated Account filed a Summons with Notice in New York Supreme
|
•
|
Ambac Assurance Corporation and the Segregated Account of Ambac Assurance Corporation v. Countrywide Home Loans, Inc., Countrywide Securities Corp., Countrywide Financial Corp., and Bank of America Corp. (Supreme Court of the State of New York, County of New York, Case No. 653979/2014, filed on December 30, 2014). Ambac Assurance asserted a claim for fraudulent inducement in connection with Ambac Assurance’s issuance of insurance policies relating to eight residential mortgage-backed securitizations that are not the subject of Ambac Assurance’s previously filed lawsuits against the same defendants. On February 20, 2015, the Countrywide defendants filed a motion to dismiss the complaint, which Bank of America joined on February 23, 2015. On December 20, 2016, the court denied defendants’ motion to dismiss. Discovery is ongoing.
|
•
|
Ambac Assurance Corporation v. U.S. Bank National Association (United States District Court, Southern District of New York, Docket No. 18-cv-5182 (LGS), filed June 8, 2018 (the “SDNY Action”)); In the matter of HarborView Mortgage Loan Trust 2005-10 (Minnesota state court, Docket No. 27-TR-CV-17-32 (the “Minnesota Action”)). These two actions relate to U.S. Bank National Association’s (“U.S. Bank”) acceptance of a proposed settlement in a separate litigation that U.S. Bank is prosecuting, as trustee, related to the Harborview Mortgage Loan Trust, Series 2005-10 (“Harborview 2005-10”), a residential mortgage-backed securitization for which Ambac Assurance issued an insurance policy. On March 6, 2017, U.S. Bank filed a petition commencing the Minnesota Action, a trust instruction proceeding in Minnesota state court concerning the proposed settlement, and on June 12, 2017, U.S. Bank filed an amended petition. Ambac Assurance filed a motion to dismiss the Minnesota Action. On November 13, 2017, the court denied Ambac Assurance’s motion to dismiss the Minnesota Action. On February 7, 2018, Ambac Assurance appealed this decision, and on September 4, 2018, the Minnesota Court of Appeals affirmed the lower court's decision. On September
|
•
|
Ambac Assurance Corporation and The Segregated Account of Ambac Assurance Corporation v. U.S. Bank National Association (United States District Court, Southern District of New York, Docket No. 17-cv-02614, filed April 11, 2017). Ambac Assurance has asserted claims for breach of contract, breach of fiduciary duty, declaratory judgment, and violation of the Streit Act in connection with defendant’s failure to enforce rights and remedies and defendant’s treatment of trust recoveries, as trustee of five residential mortgage-backed securitizations for which Ambac Assurance issued insurance policies. On September 15, 2017, U.S. Bank filed a motion to dismiss. On June 29, 2018, the court granted in part and denied in part U.S. Bank’s motion to dismiss. The court dismissed the breach-of-fiduciary duty claim in part as duplicative of the breach-of-contract claim; dismissed the breach-of-contract claim as untimely only to the extent that it was premised on U.S. Bank's obligation to certify that mortgage documents were properly delivered to the Trusts; dismissed the Streit Act claims; and otherwise denied the motion to dismiss. Discovery is ongoing.
|
•
|
In re application of Deutsche Bank National Trust Company as Trustee of the Harborview Mortgage Loan Trust Mortgage Loan Pass-Through Certificates, Series 2006-9 (Supreme Court of the State of New York, County of New York, No. 654208/2018)
, filed August 23, 2018 (the “Trust Instruction Proceeding”). This action relates to Deutsche Bank National Trust Company’s (“DBNT”) proposed settlement of claims related to the Harborview Mortgage Loan Trust Series 2006-9 (“Harborview 2006-09”). On August 23, 2018, DBNT filed a Petition commencing the Trust Instruction Proceeding, seeking judicial instruction pursuant to CPLR Article 77,
inter alia
, to accept the proposed settlement with respect of claims relating to Harborview 2006-9. On September 6, 2018, the court entered an Order to Show Cause, setting out procedures for DBNT to give notice of the proceedings and for interested persons to appear. On November 2, 2018, Ambac Assurance and other interested persons filed notices of intention to appear and answers to DBNT’s petition, and on November 29, 2018 various parties filed responses to answers. In its
|
|
|
2018 Quarters
|
|
2017 Quarters
|
||||||||||||||||||||||||||||
($ in thousands)
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
||||||||||||||||
Gross premiums written
|
|
$
|
4,261
|
|
|
$
|
(611
|
)
|
|
$
|
(22,954
|
)
|
|
$
|
(4,524
|
)
|
|
$
|
5,584
|
|
|
$
|
6,928
|
|
|
$
|
(24,696
|
)
|
|
$
|
(2,129
|
)
|
Net premiums earned
|
|
30,883
|
|
|
25,836
|
|
|
25,640
|
|
|
28,730
|
|
|
47,613
|
|
|
43,152
|
|
|
52,989
|
|
|
31,523
|
|
||||||||
Net investment income
|
|
110,240
|
|
|
66,662
|
|
|
58,332
|
|
|
37,483
|
|
|
81,559
|
|
|
85,160
|
|
|
87,177
|
|
|
107,057
|
|
||||||||
Net other than temporary impairment losses
|
|
(299
|
)
|
|
(1,014
|
)
|
|
(266
|
)
|
|
(1,659
|
)
|
|
(3,942
|
)
|
|
(1,763
|
)
|
|
(13,510
|
)
|
|
(956
|
)
|
||||||||
Net realized investment gains (losses)
|
|
4,862
|
|
|
47,148
|
|
|
30,201
|
|
|
29,413
|
|
|
(4,896
|
)
|
|
4,180
|
|
|
6,150
|
|
|
(68
|
)
|
||||||||
Net gains (losses) on derivative contracts
|
|
25,191
|
|
|
8,932
|
|
|
17,583
|
|
|
(44,716
|
)
|
|
(462
|
)
|
|
40,692
|
|
|
4,163
|
|
|
31,544
|
|
||||||||
Net realized gains (losses) on extinguishment of debt
|
|
3,115
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
2,741
|
|
|
2,179
|
|
|
—
|
|
|
—
|
|
||||||||
Income (loss) on Variable Interest Entities
|
|
574
|
|
|
577
|
|
|
1,831
|
|
|
454
|
|
|
3,701
|
|
|
(1,219
|
)
|
|
(4,049
|
)
|
|
21,237
|
|
||||||||
Losses and loss expenses (benefit)
|
|
(247,395
|
)
|
|
32,579
|
|
|
33,501
|
|
|
(42,298
|
)
|
|
135,011
|
|
|
66,100
|
|
|
209,806
|
|
|
102,269
|
|
||||||||
Insurance intangible amortization
|
|
28,636
|
|
|
23,242
|
|
|
26,421
|
|
|
28,982
|
|
|
37,525
|
|
|
33,471
|
|
|
45,690
|
|
|
34,168
|
|
||||||||
Operating expenses
|
|
36,434
|
|
|
26,063
|
|
|
28,368
|
|
|
21,339
|
|
|
28,124
|
|
|
31,304
|
|
|
34,074
|
|
|
28,934
|
|
||||||||
Interest expense
|
|
48,073
|
|
|
62,446
|
|
|
65,673
|
|
|
66,064
|
|
|
31,572
|
|
|
28,234
|
|
|
29,145
|
|
|
30,990
|
|
||||||||
Pre-tax income (loss)
|
|
308,309
|
|
|
6,308
|
|
|
(19,948
|
)
|
|
(22,136
|
)
|
|
(105,860
|
)
|
|
13,992
|
|
|
(185,466
|
)
|
|
(6,917
|
)
|
||||||||
Net income (loss)
|
|
305,704
|
|
|
4,313
|
|
|
(22,159
|
)
|
|
(20,459
|
)
|
|
(125,441
|
)
|
|
7,110
|
|
|
(190,905
|
)
|
|
(19,479
|
)
|
||||||||
Net income (loss) attributable to Common Shareholders
|
|
$
|
305,704
|
|
|
$
|
4,313
|
|
|
$
|
(103,845
|
)
|
|
$
|
(20,459
|
)
|
|
$
|
(125,441
|
)
|
|
$
|
7,110
|
|
|
$
|
(190,905
|
)
|
|
$
|
(19,479
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
|
$
|
6.72
|
|
|
$
|
0.09
|
|
|
$
|
(2.27
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(2.77
|
)
|
|
$
|
0.16
|
|
|
$
|
(4.20
|
)
|
|
$
|
(0.43
|
)
|
Diluted
|
|
$
|
6.70
|
|
|
$
|
0.09
|
|
|
$
|
(2.27
|
)
|
|
$
|
(0.45
|
)
|
|
$
|
(2.77
|
)
|
|
$
|
0.16
|
|
|
$
|
(4.20
|
)
|
|
$
|
(0.43
|
)
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
— No matters require disclosure.
|
Item 9B.
|
Other Information
— No matters require disclosure.
|
Item 10.
|
Directors, Executive Officers and Corporate Governance
|
|
|
Plan
Category
|
|
Number of Securities
to be Issued
Upon
Exercise of
Outstanding Options,
Warrants and Rights
|
|
Weighted-Average
Exercise Price of
Outstanding
Options,
Warrants and Rights
|
|
Number of Securities
Remaining Available
for Future Issuance
Under Equity
Compensation Plans
(Excluding Securities
Reflected in the
Third Column)
|
Equity compensation plans approved by security holders
|
|
2013 Incentive
Compensation Plan
(1)
|
|
1,695,693
(2) (3)
|
|
$20.63
(4)
|
|
1,972,068
|
Equity compensation plans not approved by security holders
|
|
None
|
|
---
|
|
---
|
|
---
|
Total
|
|
|
|
1,695,693
(2) (3)
|
|
$20.63
(4)
|
|
1,972.068
|
(1)
|
Our 2013 Incentive Compensation Plan was approved by the stockholders of Ambac on December 18, 2013. The total number of shares of Ambac common stock available for issuance under the 2013 Incentive Compensation Plan is 4,000,000.
|
(2)
|
Represents, as of
December 31, 2018
, the number of
outstanding restricted stock unit awards, stock options and the maximum number of performance stock units that may be issued if certain performance goals are achieved. Refer to
Note 15. Employment Benefit Plans
to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for a description of the grants made under the 2013 Incentive Compensation Plan. This amount includes 645,028 restricted stock units, 16,667 options and 1,033,998 performance stock units which are based on the maximum number of shares potentially payable under the awards.
|
(3)
|
Each restricted stock unit, stock option and performance stock unit awarded under our 2013 Incentive Compensation Plan was granted at no cost to the persons receiving them. Restricted stock units represent the contingent right to receive the equivalent number of shares of Ambac common stock and may vest after the passage of time. Stock options represent the right to acquire an equivalent number of shares of Ambac common stock at a specified exercise price. Performance stock units granted pursuant to the Company's Long Term Incentive Plan represent the contingent right to receive a number of shares of Ambac common stock ranging from 0% to 200% of the number of units granted depending upon the achievement of certain company-wide performance goals at the end of a specified performance period.
|
(4)
|
Reflects the weighted-average price of all outstanding options that had been granted but not forfeited, expired or exercised. Performance shares and restricted stock units are not included in determining the weighted-average price as they have no exercise price.
|
(a)
|
Documents filed as a part of this report:
|
1.
|
Financial Statements
|
2.
|
Financial Statement Schedules
|
(b)
|
Exhibits
|
||
|
|
|
|
|
10.3
|
|
|
|
10.4
|
|
|
|
10.5
|
|
|
|
10.6
|
|
|
|
10.7
|
|
|
|
10.8
|
|
|
|
10.9
|
|
|
|
10.10
|
|
|
|
10.11
|
|
|
|
10.12
|
|
|
|
10.13
|
|
|
|
10.14
|
|
|
|
10.15
|
|
|
|
10.16
|
|
|
|
10.17
|
|
|
|
10.18
|
|
|
|
10.19
|
|
|
|
10.20
|
|
|
|
10.21
|
|
|
|
10.22
|
|
|
|
10.23
|
|
(b)
|
Exhibits
|
||
|
|
|
|
|
10.24
|
|
|
|
10.25
|
|
|
|
10.26
|
|
|
|
10.27
|
|
|
|
10.28
|
|
|
|
10.29
|
|
|
|
10.30
|
|
|
|
10.31
|
|
|
|
10.32
|
|
|
|
10.33
|
|
|
|
10.34
|
|
|
|
10.35
|
|
|
|
10.36
|
|
|
|
10.37+
|
|
|
|
10.38
|
|
|
|
10.39
|
|
|
|
10.40
|
|
|
|
10.41
|
|
Type of Investment
($ in Thousands)
|
|
Cost
|
|
Estimated
Fair Value
|
|
Amount at Which
Shown in the
Balance Sheet
|
||||||
Municipal obligations
|
|
$
|
882,631
|
|
|
$
|
879,919
|
|
|
$
|
879,919
|
|
Corporate obligations
|
|
1,288,882
|
|
|
1,278,122
|
|
|
1,278,122
|
|
|||
Foreign obligations
|
|
30,496
|
|
|
30,834
|
|
|
30,834
|
|
|||
U.S. government obligations
|
|
93,636
|
|
|
94,394
|
|
|
94,394
|
|
|||
Residential mortgage-backed securities
|
|
221,825
|
|
|
258,607
|
|
|
258,607
|
|
|||
Collateralized debt obligations
|
|
133,075
|
|
|
131,356
|
|
|
131,356
|
|
|||
Other asset-backed securities
|
|
370,199
|
|
|
442,443
|
|
|
442,443
|
|
|||
Short-term
|
|
430,405
|
|
|
430,331
|
|
|
430,331
|
|
|||
Other
|
|
362,847
|
|
|
391,217
|
|
|
391,217
|
|
|||
Total
|
|
$
|
3,813,996
|
|
|
$
|
3,937,223
|
|
|
$
|
3,937,223
|
|
($ in thousands, except share data) December 31,
|
2018
|
|
2017
|
||||
Assets:
|
|
|
|
||||
Fixed income securities, at fair value (amortized cost: 2018—$151,007 and 2017—$239,476)
|
$
|
148,194
|
|
|
$
|
230,055
|
|
Short-term investments, at cost (approximates fair value)
|
192,996
|
|
|
69,531
|
|
||
Other investments
|
40,168
|
|
|
64,691
|
|
||
Total investments
|
381,358
|
|
|
364,277
|
|
||
Cash
|
14,942
|
|
|
3,949
|
|
||
Investment in subsidiaries
|
1,147,883
|
|
|
968,392
|
|
||
Investment income due and accrued
|
820
|
|
|
329
|
|
||
Current taxes receivable
(1)
|
44,353
|
|
|
29,576
|
|
||
Other assets
|
3,205
|
|
|
14,946
|
|
||
Total assets
|
$
|
1,592,561
|
|
|
$
|
1,381,469
|
|
Liabilities and Stockholders' Equity:
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Accounts payable and other liabilities
|
564
|
|
|
321
|
|
||
Total liabilities
|
564
|
|
|
321
|
|
||
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 shares: 45,365,170 and 45,275,982
|
454
|
|
|
453
|
|
||
Additional paid-in capital
|
219,429
|
|
|
199,560
|
|
||
Accumulated other comprehensive income (loss)
|
(48,715
|
)
|
|
(52,239
|
)
|
||
Retained earnings
|
1,421,302
|
|
|
1,233,845
|
|
||
Treasury stock, shares at cost: 28,892 and
24,816
|
(473
|
)
|
|
(471
|
)
|
||
Total Ambac Financial Group, Inc. stockholders’ equity
|
1,591,997
|
|
|
1,381,148
|
|
||
Total liabilities and stockholders’ equity
|
$
|
1,592,561
|
|
|
$
|
1,381,469
|
|
(1)
|
As of December 31, 2018, and December 31, 2017,
$44,381
, and
$30,496
, respectively, relate to receivables from the Registrant's wholly-owned subsidiary, Ambac Assurance Corporation, pursuant to the intercompany tax sharing agreement, with the difference being state income taxes.
|
($ in thousands) Year Ended December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Investment income
|
$
|
27,525
|
|
|
$
|
24,411
|
|
|
$
|
13,493
|
|
Other income
|
35
|
|
|
—
|
|
|
—
|
|
|||
Other than temporary impairments
|
(918
|
)
|
|
(550
|
)
|
|
(289
|
)
|
|||
Net realized gains (losses)
|
(933
|
)
|
|
(6,575
|
)
|
|
(7
|
)
|
|||
Total revenues
|
25,709
|
|
|
17,286
|
|
|
13,197
|
|
|||
Expenses:
|
|
|
|
|
|
||||||
Operating expenses
|
8,315
|
|
|
3,913
|
|
|
11,486
|
|
|||
Total expenses
|
8,315
|
|
|
3,913
|
|
|
11,486
|
|
|||
Income (loss) before income taxes and equity in undistributed net loss of subsidiaries
|
17,394
|
|
|
13,373
|
|
|
1,711
|
|
|||
Federal income tax provision (benefit)
|
(11,102
|
)
|
|
(29,398
|
)
|
|
(28,739
|
)
|
|||
Income before equity in undistributed net income of subsidiaries
|
28,496
|
|
|
42,771
|
|
|
30,450
|
|
|||
Equity in undistributed net income (loss) of subsidiaries
|
157,217
|
|
|
(371,486
|
)
|
|
44,393
|
|
|||
Net income (loss)
|
$
|
185,713
|
|
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
|
|
|
|
|
|
||||||
Other comprehensive income (loss), after tax:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
185,713
|
|
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
Unrealized gains (losses) on securities, net of income tax provision (benefit) of $2,366, $0 and $0
|
55,148
|
|
|
(81,520
|
)
|
|
67,900
|
|
|||
Gains (losses) on foreign currency translation, net of income tax provision (benefit) of $0, $0 and $0
|
(47,893
|
)
|
|
73,586
|
|
|
(122,128
|
)
|
|||
Credit risk changes of fair value option liabilities, net of income tax provision (benefit) of $161, $0 and $0
|
935
|
|
|
—
|
|
|
—
|
|
|||
Changes to postretirement benefit, net of income tax provision (benefit) of $0, $0 and $0
|
(1,766
|
)
|
|
1,273
|
|
|
23
|
|
|||
Total other comprehensive income (loss)
|
6,424
|
|
|
(6,661
|
)
|
|
(54,205
|
)
|
|||
Total comprehensive income (loss) attributable to Ambac Financial Group, Inc.
|
$
|
192,137
|
|
|
$
|
(335,376
|
)
|
|
$
|
20,638
|
|
($ in thousands)
|
Total
|
|
Retained
Earnings
|
|
Accumulated
Other
Comprehensive
Income
|
|
Preferred
Stock
|
|
Common
Stock
|
|
Additional Paid-in
Capital
|
|
Common
Stock Held
in Treasury,
at Cost
|
||||||||||||||
Balance at January 1, 2018
|
$
|
1,381,148
|
|
|
$
|
1,233,845
|
|
|
$
|
(52,239
|
)
|
|
$
|
—
|
|
|
$
|
453
|
|
|
$
|
199,560
|
|
|
$
|
(471
|
)
|
Total comprehensive income
(loss)
|
192,137
|
|
|
185,713
|
|
|
6,424
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Adjustment to initially apply ASU 2016-01
|
—
|
|
|
2,900
|
|
|
(2,900
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation
|
11,854
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11,854
|
|
|
—
|
|
|||||||
Cost of shares (acquired) issued under equity plan
|
(1,158
|
)
|
|
(1,156
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|||||||
Issuance of common stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|||||||
Issuance of warrants
|
8,012
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8,012
|
|
|
—
|
|
|||||||
Warrants exercised
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|||||||
Balance at December 31, 2018
|
$
|
1,591,997
|
|
|
$
|
1,421,302
|
|
|
$
|
(48,715
|
)
|
|
$
|
—
|
|
|
$
|
454
|
|
|
$
|
219,429
|
|
|
$
|
(473
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance at Balance at January 1, 2017
|
$
|
1,713,914
|
|
|
$
|
1,557,681
|
|
|
$
|
(38,990
|
)
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
195,267
|
|
|
$
|
(496
|
)
|
Total comprehensive income
|
(335,376
|
)
|
|
(328,715
|
)
|
|
(6,661
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Adjustment to initially apply ASU 2018-02
|
—
|
|
|
6,588
|
|
|
(6,588
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Adjustment to initially apply ASU 2016-09
|
(137
|
)
|
|
(137
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation
|
4,293
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4,293
|
|
|
—
|
|
|||||||
Cost of shares (acquired) issued under equity plan
|
(1,547
|
)
|
|
(1,572
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
25
|
|
|||||||
Issuance of common stock
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|||||||
Balance at December 31, 2017
|
$
|
1,381,148
|
|
|
$
|
1,233,845
|
|
|
$
|
(52,239
|
)
|
|
$
|
—
|
|
|
$
|
453
|
|
|
$
|
199,560
|
|
|
$
|
(471
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance at January 1, 2016
|
$
|
1,684,799
|
|
|
$
|
1,478,439
|
|
|
$
|
15,215
|
|
|
$
|
—
|
|
|
$
|
450
|
|
|
$
|
190,813
|
|
|
$
|
(118
|
)
|
Total comprehensive income
|
20,638
|
|
|
74,843
|
|
|
(54,205
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Adjustment to initially apply ASU 2014-13
|
6,442
|
|
|
6,442
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation
|
5,253
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,253
|
|
|
—
|
|
|||||||
Cost of shares (acquired) issued under equity plan
|
(505
|
)
|
|
(127
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(378
|
)
|
|||||||
Cost of warrants acquired
|
(2,717
|
)
|
|
(1,916
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(801
|
)
|
|
—
|
|
|||||||
Issuance of common stock
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|||||||
Warrants exercised
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
—
|
|
|||||||
Balance at December 31, 2016
|
$
|
1,713,914
|
|
|
$
|
1,557,681
|
|
|
$
|
(38,990
|
)
|
|
$
|
—
|
|
|
$
|
452
|
|
|
$
|
195,267
|
|
|
$
|
(496
|
)
|
($ in thousands) Year Ended December 31,
|
2018
|
|
2017
|
|
2016
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
185,713
|
|
|
$
|
(328,715
|
)
|
|
$
|
74,843
|
|
Adjustments to reconcile net income loss to net cash used in operating activities:
|
|
|
|
|
|
||||||
Equity in undistributed net (income) loss of non-debtor subsidiaries
|
(157,217
|
)
|
|
371,486
|
|
|
(44,393
|
)
|
|||
Amortization of bond premium and discount
|
(7,284
|
)
|
|
(16,724
|
)
|
|
(7,208
|
)
|
|||
Other-than-temporary impairment charges
|
918
|
|
|
550
|
|
|
289
|
|
|||
Net realized gains (losses)
|
933
|
|
|
6,575
|
|
|
7
|
|
|||
Increase (decrease) in current income taxes payable
|
(14,776
|
)
|
|
(854
|
)
|
|
42,126
|
|
|||
Share-based compensation
|
11,854
|
|
|
4,293
|
|
|
5,253
|
|
|||
Investment income due and accrued
|
(491
|
)
|
|
(57
|
)
|
|
(149
|
)
|
|||
(Increase) decrease in other assets
|
11,741
|
|
|
(10,814
|
)
|
|
646
|
|
|||
Other, net
|
247
|
|
|
(9,960
|
)
|
|
5,814
|
|
|||
Net cash provided by (used in) operating activities
|
31,638
|
|
|
15,780
|
|
|
77,228
|
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Proceeds from matured bonds
|
230,448
|
|
|
186,747
|
|
|
269,459
|
|
|||
Purchases of bonds
|
(136,534
|
)
|
|
(195,853
|
)
|
|
(279,582
|
)
|
|||
Change in short-term investments
|
(123,465
|
)
|
|
(2,961
|
)
|
|
(18,491
|
)
|
|||
Change in other investments
|
24,523
|
|
|
(34,688
|
)
|
|
(4,664
|
)
|
|||
Purchase of auction market preferred shares of Ambac Assurance
|
(11,048
|
)
|
|
—
|
|
|
—
|
|
|||
Other, net
|
(4,572
|
)
|
|
2,673
|
|
|
(9,009
|
)
|
|||
Net cash provided by (used in) investing activities
|
(20,648
|
)
|
|
(44,082
|
)
|
|
(42,287
|
)
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Cost of warrants acquired
|
—
|
|
|
—
|
|
|
(2,717
|
)
|
|||
Proceeds from warrant exercise
|
3
|
|
|
—
|
|
|
2
|
|
|||
Net cash (used in) financing activities
|
3
|
|
|
—
|
|
|
(2,715
|
)
|
|||
Net cash flow
|
10,993
|
|
|
(28,302
|
)
|
|
32,226
|
|
|||
Cash at beginning of period
|
3,949
|
|
|
32,251
|
|
|
25
|
|
|||
Cash at end of period
|
$
|
14,942
|
|
|
$
|
3,949
|
|
|
$
|
32,251
|
|
|
|
|
|
|
|
||||||
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
||||||
Income taxes
|
$
|
3,674
|
|
|
$
|
784
|
|
|
$
|
635
|
|
Non-cash financing activity:
|
|
|
|
|
|
||||||
Issuance of warrants in connection with purchase of auction market preferred shares of Ambac Assurance
|
$
|
8,012
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Insurance Premiums Written
($ in Thousands)
|
Gross
Amount
|
|
Ceded to Other
Companies
|
|
Assumed from
Other
Companies
|
|
Net
Amount
|
|
Percentage of
Amount
Assumed to
Net
|
||||||||
Year Ended December 31, 2018
|
$
|
(23,828
|
)
|
|
$
|
16,860
|
|
|
$
|
—
|
|
|
$
|
(40,688
|
)
|
|
—%
|
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2017
|
(14,313
|
)
|
|
(2,104
|
)
|
|
$
|
—
|
|
|
(12,209
|
)
|
|
—%
|
|||
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2016
|
(53,837
|
)
|
|
(8,772
|
)
|
|
—
|
|
|
(45,065
|
)
|
|
—%
|
|
|
AMBAC FINANCIAL GROUP, INC.
|
|
|
|
|
|
Dated:
|
February 28, 2019
|
By:
|
/S/ DAVID TRICK
|
|
|
|
David Trick
|
|
|
|
Executive Vice President and Chief Financial Officer
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/S/ JEFFREY S. STEIN*
|
|
Chairman of the Board and Director
|
|
February 28, 2019
|
Jeffrey S. Stein
|
|
|
|
|
|
|
|
|
|
/S/ CLAUDE LEBLANC
|
|
President, Chief Executive Officer and Director
|
|
February 28, 2019
|
Claude LeBlanc
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/S/ DAVID TRICK
|
|
Executive Vice President and Chief Financial Officer
|
|
February 28, 2019
|
David Trick
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/S/ ROBERT B. EISMAN
|
|
Senior Managing Director and Chief Accounting Officer
|
|
February 28, 2019
|
Robert B. Eisman
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/S/ ALEXANDER D. GREENE*
|
|
Director
|
|
February 28, 2019
|
Alexander D. Greene
|
|
|
|
|
|
|
|
|
|
/S/ IAN D. HAFT*
|
|
Director
|
|
February 28, 2019
|
Ian D. Haft
|
|
|
|
|
|
|
|
|
|
/S/ DAVID L. HERZOG*
|
|
Director
|
|
February 28, 2019
|
David L. Herzog
|
|
|
|
|
|
|
|
|
|
/S/ C. JAMES PRIEUR*
|
|
Director
|
|
February 28, 2019
|
C. James Prieur
|
|
|
|
|
|
|
|
|
|
/S/ JOAN LAMM-TENNANT*
|
|
Director
|
|
February 28, 2019
|
Joan Lamm-Tennant
|
|
|
|
|
|
|
|
|
|
/S/ STEPHEN M. KSENAK
|
|
|
|
|
*By: Stephen M. Ksenak
|
|
Attorney-in-fact
|
|
February 28, 2019
|
1.
|
Payment of Interest; Maturity
. Interest on this promissory note (this “
Note
”) will accrue from the Issue Date at a rate per annum equal to the LIBOR Rate (as defined below) plus 5.00%, and shall be payable in cash on the last day of each calendar quarter of each year (each such quarter, an “
Interest Period
” and each such date, a “
Interest Payment Date
”) until the earlier of (x) February 12, 2023 and (y) provided that the Secured Notes are still outstanding, the date that is five Business Days prior to the date which the Office of the Commissioner of Insurance of the State of Wisconsin has approved for the repayment of all of the outstanding principal amount of all Surplus Notes issued by the Ambac Note Issuer (the “
Maturity Date
”); provided that the first Interest Payment Date shall be June 30, 2018, and the first Interest Period shall commence on the date first written above and end on June 30, 2018. Interest on this Note shall be computed on the basis of a 360-day year of twelve 30-day months. All outstanding principal hereunder and all accrued but unpaid interest thereon will be due and payable on the Maturity Date.
|
2.
|
Optional Payment Date
. This Note may be redeemed, in whole or in part, at the option of the Ambac Note Issuer in its sole discretion, on any Interest Payment Date, without penalty or premium. Such redemption shall be (i) accompanied by a payment of all regularly scheduled interest accrued and unpaid due on this Note to, but not including, the applicable Secured Notes Redemption Date, (ii) applied to principal on this Note on the Secured Notes Redemption Date arising as a result of the redemption of this Note, and (iii) funded in immediately available funds directly into the Ambac Note Proceeds Collateral Account.
|
3.
|
Mandatory Redemption
. Promptly, and in any event within four Business Days after the receipt (whether directly or indirectly) of any Tier I Net Proceeds, the Ambac Note Issuer shall (i) apply an amount (the “
Mandatory Redemption Amount
”) equal to the lesser of (a) the amount of such Tier I Net Proceeds and (b) all outstanding principal and accrued and unpaid interest on this Note to redeem this Note, in whole
|
4.
|
Deemed Redemption
. If any outstanding principal on any of the Secured Notes are repaid or redeemed from any source (including, without limitation, the Secured Notes Policy), other than from proceeds of this Note, the principal balance of this Note shall be deemed to be repaid in amount equal to such payment and the outstanding principal balance of this Note shall be correspondingly reduced.
|
5.
|
Expenses; Indemnity
. The Ambac Note Issuer agrees to (a) pay all reasonable, out-of-pocket expenses incurred by the Holder (including, without limitation, the reasonable fees, charges and disbursements of counsel for the Holder) in connection with this Note, the Secured Notes Indenture, or the Secured Notes Policy (including the payment of any premium in respect thereof), any amendment, modification or waiver hereof or thereof, and any exercise of remedies or enforcement or preservation of rights hereunder or thereunder and (b) to pay, indemnify or reimburse the Holder for, and hold the Holder harmless from and against, any and all other liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Note (other than those resulting from the gross negligence or willful misconduct of the Holder).
|
6.
|
Grant of Security Interest
. The Ambac Note Issuer hereby grants the Holder a security interest in all of the Collateral of the Ambac Note Issuer (whether now owned or hereafter acquired) as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity or otherwise) of the obligations of the Ambac Note Issuer hereunder.
|
7.
|
Covenants
.
|
a.
|
The Ambac Note Issuer shall:
|
A.
|
maintain in the United States one or more offices or agencies where this Note may be presented or surrendered for payment;
|
B.
|
direct any defendant in the RMBS Litigation to pay any cash Tier I Net Proceeds directly into the Tier I Proceeds Collateral Account;
provided
that the failure on the part of any such defendant to so pay shall not constitute a Default hereunder;
|
C.
|
pursue the RMBS Litigation, in good faith, and in a manner consistent with a plaintiff acting solely on its own account;
|
D.
|
use commercially reasonable efforts to maintain the security interest created by this Note in the Collateral as a perfected security interest as and to the extent described herein for the purpose of obtaining or preserving the full benefits of this Note and of the rights and powers herein granted by the Ambac Note Issuer;
|
E.
|
use commercially reasonable efforts to take any and all actions reasonably necessary or required or requested by the Holder (in each case at the sole expense of the Ambac Note Issuer), so as at all times to maintain the validity, perfection, enforceability and priority of the security interest in and Lien on the Collateral granted to the Holder in this Note or to enable the Holder to protect, exercise or enforce its rights hereunder and in the Collateral, including (i) immediately discharging all Liens on the Collateral, other than Permitted Liens, (ii) filing any financing and continuation statements or similar documents, and (iii) promptly executing and delivering control agreements relating to the creation, validity, perfection, maintenance or continuation of the Holder’s security interest in and Lien on the Collateral; provided that, notwithstanding any other provision of this Note, the Ambac Note Issuer will not be required (x) to take any action in any Foreign Jurisdiction, or required by the laws of any such Foreign Jurisdiction, or to enter into any security agreement or pledge agreement governed by the laws of any such Foreign Jurisdiction, in order to create any security interests (or other Liens) in Collateral located or titled in such Foreign Jurisdiction, or in order to perfect any security interests (or other Liens) in any such Collateral, other than in each case, Collateral consisting of the Tier I Proceeds Collateral Account or the Pledged Securities if such Collateral consisting of the Tier I Proceeds Collateral Account or the Pledged Securities is located in a Foreign Jurisdiction or (y) to deliver control agreements with respect to, or confer perfection by “control” over, any deposit accounts, bank or securities account or other Collateral, other than with respect to the Tier I Proceeds Collateral Account or any deposit, bank or securities account in which the Pledged Securities may be held;
|
F.
|
give prompt written notice to the Holder of any change in its name or location (as determined by Section 9-307 of the Uniform Commercial Code) (whether by merger or otherwise) (and in any event within 30 days of such change); provided that, promptly thereafter, the Ambac Note Issuer shall deliver to the Holder copies (or other evidence of filing) of all additional filed financing statements and other documents reasonably necessary to maintain the validity, perfection and priority of the security interests created hereunder and other documents reasonably requested by the Holder to maintain the validity, perfection and priority of the security interests as and to the extent provided for herein;
|
G.
|
if the Ambac Notes Issuer receives any Tier I Net Proceeds that are not in the form of cash, use its commercially reasonable efforts to promptly obtain an appraisal from an Appraiser setting forth the Fair Market Value of such non-cash Tier I Net Proceeds;
|
H.
|
take any and all actions necessary to maintain the senior unsubordinated status of the obligations of the Ambac Note Issuer under this Note in relation to any of its subordinated Indebtedness; and
|
I.
|
establish and maintain the Tier I Proceeds Collateral Account in the State of New York and, on or prior to the Issue Date, deposit the Pledged Securities therein.
|
b.
|
The Ambac Note Issuer shall not:
|
8.
|
Applicable Interest Payments
. It is understood and agreed that, if
|
a.
|
the Ambac Note Issuer shall have made a payment of any interest on this Note (such payment, a “
General Account Payment
”) from a source other than
|
b.
|
on the date of such General Account Payment, immediately after giving effect thereto, there were funds on deposit in the Tier I Proceeds Collateral Account that have not subsequently been withdrawn consisting of interest income or accrued interest on any Pledged Securities or Replacement Investments (“
Available Interest Proceeds
”),
|
A.
|
such Available Interest Proceeds and
|
B.
|
such General Account Payment, less amounts withdrawn or that are intended to be withdrawn from the Principal Proceeds Collateral Account (as defined in the AAC Pledge Agreement) in respect of such General Account Payment pursuant to Section 4.1.2 of the AAC Pledge Agreement,
|
9.
|
Default
. An “
Event of Default
” means the occurrence of the following, which shall continue until cured (if such default is capable of cure):
|
10.
|
Remedies.
Subject to
Section 16
, if an Event of Default shall occur and be continuing, the Holder may (but shall not be obligated to) exercise, in addition to all other rights and remedies granted to it in this Note to the extent permitted by applicable law, all rights and remedies of a secured party under the Uniform Commercial Code (whether or not the Uniform Commercial Code applies to the affected Collateral) and under any other applicable law and in equity. Without limiting the generality of the foregoing, to the extent permitted by applicable law and not prohibited by
Sections 14
or
16
, the Holder, without demand of performance or other demand, presentment, protest, advertisement or notice of any kind (except any notice required by law referred to below) to or upon the Ambac Note Issuer or any other person (all and each of which demands, defenses, advertisements and notices are hereby waived), may in such circumstances (but shall not be obligated to), forthwith collect, receive, appropriate and realize upon the Collateral, or any part thereof, and/or may forthwith, subject to any existing reserved rights or licenses, sell, lease, assign, give option or options to purchase, or otherwise dispose of and deliver the Collateral or any part thereof (or contract to do any of the foregoing), in one or more parcels at public or private sale or sales, at any exchange, broker’s board or office of the Holder or any other secured party or elsewhere upon such terms and conditions as it may reasonably deem advisable and at such prices as it may deem best, for cash or on credit or for future delivery without assumption of any credit risk. To the extent permitted by law and not prohibited by
Sections 14
or
16
, the Holder or any other secured party shall have the right, upon any such sale or sales, to purchase the whole or any part of the Collateral so sold, free of any right or equity of redemption in the Ambac Note Issuer, which right or equity is hereby waived and released. The Ambac Note Issuer further agrees, at the Note Collateral Agent’s request, to assemble the Collateral and make it available to the Holder at places which the Holder shall reasonably select, whether at the Ambac Note Issuer’s premises or elsewhere. The Holder shall apply the net proceeds of any action taken by it pursuant to this section, after deducting all reasonable and documented out-of-pocket costs and expenses of every kind incurred in connection therewith or incidental to the care or safekeeping of any of the Collateral or in any way relating to the Collateral or the rights of the Holder, including reasonable attorneys’ fees and disbursements, to the payment of the obligations of the Ambac Note Issuer then due and owing under this Note, and only after the payment by the Holder of any other amount required by any provision of law, including Section 9-615(a)(3) of the Uniform Commercial Code, need the Holder account for the surplus, if any, to the Ambac Note Issuer. To the extent permitted by applicable law, (i) the Ambac Note Issuer waives all claims, damages and demands it may acquire against the Holder or any other secured party arising out of the repossession,
|
11.
|
Amendment, Supplement or Waiver
.
|
(a)
|
The Ambac Note Issuer and the Holder may amend or supplement this Note and the Holder may waive any existing default or Event of Default or noncompliance by the Ambac Note Issuer with any provision of this Note, in each case, in writing;
provided
that any such amendment, supplement or waiver will only be effective if the Note Collateral Agent (acting on behalf of holders of Secured Notes (“
Secured Noteholders
”) holding no less than 66⅔% in aggregate principal amount of Secured Notes then Outstanding) shall have provided a written consent thereto;
provided
,
further
,
that the consent of the Note Collateral Agent (acting on behalf of each affected Secured Noteholder) shall be required for any amendment, supplement or waiver that:
|
(b)
|
Any amendments, supplements or waivers in respect of this Note that have not been effected in accordance with
Section 11.A
shall be void
ab initio
.
|
(c)
|
The Trustee under the Secured Notes, the Note Collateral Agent under the Secured Notes, and the holders of Secured Notes are third-party beneficiaries of this
Section 11
.
|
12.
|
Governing Law
. This Note shall be governed by, and construed in accordance with, the laws of the State of New York. Ambac Note Issuer and the Holder each agree to submit to the exclusive jurisdiction of any United States federal or state court located in the borough of Manhattan, in the city of New York in any action or proceeding arising out of or relating to this Note. EACH OF THE AMBAC NOTE ISSUER AND THE HOLDER HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS NOTE OR THE TRANSACTION CONTEMPLATED HEREBY.
|
13.
|
Severability
. If any provision of this Note or the application thereof to any party or circumstance is held invalid or unenforceable, the remainder of this Note and the application of such provision to other parties or circumstances shall not be affected thereby, the provisions of this Note being severable in any such instance.
|
14.
|
Successors
. It is agreed and acknowledged that the Holder is granting a security interest in this Note and the rights hereunder (including the Tier I Proceeds Collateral Account) to the Note Collateral Agent for the benefit of the Secured Parties to secure the obligations of the Holder under the Secured Notes Indenture and the Secured Notes. The Ambac Note Issuer agrees for the benefit of the Note Collateral Agent and the Secured Parties that it will not grant “control” within the meaning of Articles 8 and 9 of the Uniform Commercial Code to anyone other than the Holder or the Note Collateral Agent and any such grant to anyone other than the Holder or the Note Collateral Agent shall be void ab initio. If an Ambac Event of Default under the Secured Notes Indenture has occurred and is continuing, the Note Collateral Agent under the Secured Notes Indenture may, but is not obligated to, exercise all rights of the Holder hereunder on behalf of the holders of the Secured Notes (with any proceeds resulting from such exercise or otherwise being applied as set forth in the Collateral Agreement);
provided
that upon the occurrence of an Ambac Event of Default listed in clause (ii) of the definition thereof, this Note shall be automatically assigned to the Note Collateral Agent without any further action on the part of any person and the Note Collateral Agent may exercise every right and power under this Note as the Holder hereunder;
provided
,
further
, that once assigned to the Note Collateral Agent, this Note shall not be transferable or assignable by such Note Collateral Agent or any other person without the prior written consent of the Ambac Note Issuer;
provided
,
further
, that, subject to
Section 19
, upon the payment in full of all Obligations (other than contingent indemnification obligations) of the Secured Notes, this Note shall be deemed to be fully satisfied, paid, and discharged. Except as provided above, this Note shall not be transferable or assignable by the Holder without the prior written consent of the Ambac Note Issuer (whether or not an Event of Default has occurred and is continuing). The Ambac Note Issuer may not assign or otherwise transfer any of its obligations under this Note without the prior written consent of the Holder. The terms of this Note be binding upon and shall inure to the benefit of the Ambac Note Issuer and the Holder and their respective permitted successors and assigns.
|
15.
|
Record of Principal Payments
. After any payment of principal on this Note, the Ambac Note Issuer shall, and is hereby authorized by the Holder to, make a record of such payment on Schedule A hereto;
provided
, that any failure to make such a record shall in no way affect the outstanding principal balance of this Note, which shall in any event be reduced by the amount of such payment.
|
16.
|
Control of RMBS Litigation
. Notwithstanding anything in this Note to the contrary, at all times, (a) the Ambac Note Issuer and the Segregated Account (if not merged with and into the Ambac Note Issuer) will control the RMBS Litigation in all respects (including, without limitation, all decisions as to strategy, settlement, pursuit and abandonment), and none of (w) the Trustee under the Secured Notes Indenture, (x) any holder of the Secured Notes or of any beneficial interest therein, (y) the Note Collateral Agent
|
17.
|
Tax Treatment
. For federal, state and local income tax purposes, the Ambac Note Issuer and the Holder each agree to treat the issuances of this Note and the Secured Notes as the issuance by the Ambac Note Issuer of this Note directly to the holders of the Secured Notes, the Secured Notes as evidencing beneficial interests in this Note, and this Note as indebtedness of the Ambac Note Issuer.
|
18.
|
Legal Holidays
. In any case where any amounts due under this Note is due and payable on any day that is not a Business Day, then (notwithstanding any other provision of this Note) payment of such amount may be made on the next succeeding Business Day with the same force and effect as if made on the date originally due, and no interest shall accrue on such payment for the intervening period.
|
19.
|
Reinstatement
. If any claim is ever made solely in respect of Liens described by clause (e) of the definition of Permitted Liens by holders of such Permitted Liens upon the Holder for repayment or recovery of any amount or amounts received in payment or on account of any of the Obligations under this Note and the Holder repays all or part of said amount by reason of (i) any judgment, order or decree of any court or administrative body having jurisdiction over the Holder or any of its property or (ii) any settlement or compromise of any such claim to which the Ambac Note Issuer agrees that is effected by the Holder with any such claimant (including, without limitation, the Ambac Note Issuer), then and in such event the Ambac Note Issuer agrees that any such judgment, decree, order, settlement or compromise shall be binding upon the Ambac Note Issuer, notwithstanding any revocation hereof or the cancellation of any instrument evidencing any liability of the Ambac Note Issuer, and the Ambac Note Issuer shall be and remain liable to Holder hereunder for the amount so repaid or recovered to the same extent as if such amount had never originally been received by the Holder;
provided
that, notwithstanding anything to the contrary herein, if any amount is reinstated pursuant to Section 106 of the Secured Notes Indenture, an equivalent amount shall be reinstated hereunder to the extent not already reinstated pursuant to this
Section 19
without giving effect to this proviso and the Ambac Note Issuer shall be and remain liable to Holder hereunder for such amount so reinstated to the same extent as if such amount had never originally been received by the Holder.
|
Date of Principal Payment
|
Amount of Principal Payment
|
Remaining Outstanding Principal Balance of the Note
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
The Respondent and Ambac Financial Group Inc. will follow the requirements that applied under Section 3.01 of the Cooperation Agreement dated as of March 24, 2010, as amended, and the terms of Section 3.01 are hereby incorporated into this stipulation and order by reference.
|
(2)
|
All other terms and conditions of the January 23, 2018 order remain in effect.
|
Name
|
|
State of Incorporation
|
Ambac Asset Management, Inc.
|
|
(Delaware)
|
Ambac Assurance Corporation
|
|
(Wisconsin)
|
Ambac Assurance UK Limited
|
|
(United Kingdom Insurance Company)
|
Ambac Capital Corporation
|
|
(Delaware)
|
Ambac Capital Funding, Inc.
|
|
(Delaware)
|
Ambac Credit Products, LLC
|
|
(Delaware)
|
Ambac Financial Services, LLC
|
|
(Delaware)
|
Ambac Investments, Inc.
|
|
(Delaware)
|
Archer Holdings Portfolio I, LLC
|
|
(Delaware)
|
Everspan Financial Guarantee Corp.
|
|
(Wisconsin)
|
Ortley Investments LLC
|
|
(Delaware)
|
Osprey Holdings I, LLC
|
|
(Delaware)
|
AE Global Holdings, LLC
|
|
(Delaware)
|
AE Global Asset Funding, LLC
|
|
(Delaware)
|
AE Global Investments, LLC
|
|
(Delaware)
|
Ambac Conduit Funding LLC
|
|
(Delaware)
|
Juneau Investments LLC
|
|
(Delaware)
|
Phoenix Holdings Fund LLC
|
|
(Delaware)
|
Triton Real Estate Holding I, LLC
|
|
(Delaware)
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/S/ JEFFREY S. STEIN
|
|
Chairman of the Board and Director
|
|
February 28, 2019
|
Jeffrey S. Stein
|
|
|
|
|
|
|
|
|
|
/S/ CLAUDE LeBLANC
|
|
President, Chief Executive Officer and Director
|
|
February 28, 2019
|
Claude LeBlanc
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/S/ DAVID TRICK
|
|
Executive Vice President and Chief Financial Officer
|
|
February 28, 2019
|
David Trick
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/S/ ROBERT B. EISMAN
|
|
Senior Managing Director and Chief Accounting Officer
|
|
February 28, 2019
|
Robert B. Eisman
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/S/ ALEXANDER D. GREENE
|
|
Director
|
|
February 28, 2019
|
Alexander D. Greene
|
|
|
|
|
|
|
|
|
|
/S/ IAN D. HAFT
|
|
Director
|
|
February 28, 2019
|
Ian D. Haft
|
|
|
|
|
|
|
|
|
|
/S/ DAVID L. HERZOG
|
|
Director
|
|
February 28, 2019
|
David L. Herzog
|
|
|
|
|
|
|
|
|
|
/S/ C. JAMES PRIEUR
|
|
Director
|
|
February 28, 2019
|
C. James Prieur
|
|
|
|
|
|
|
|
|
|
/S/ JOAN LAMM -TENNANT
|
|
Director
|
|
February 28, 2019
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Joan Lamm-Tennant
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1.
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I have reviewed this
Annual
Report on Form
10-K
for the year ended
December 31, 2018
of Ambac Financial Group, Inc. (the "registrant");
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a.
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b.
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c.
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
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a.
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b.
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Dated:
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February 28, 2019
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By:
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/s/ Claude LeBlanc
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Claude LeBlanc
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President and Chief Executive Officer
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1.
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I have reviewed this
Annual
Report on Form
10-K
for the year ended
December 31, 2018
of Ambac Financial Group, Inc (the "registrant");
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2.
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Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
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3.
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Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
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4.
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The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
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a.
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Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
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b.
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Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
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c.
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Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
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d.
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Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
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5.
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The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
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a.
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All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b.
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Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Dated:
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February 28, 2019
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By:
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/s/ David Trick
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David Trick
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Executive Vice President and Chief Financial Officer
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(1)
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The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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(2)
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The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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By:
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/s/ Claude LeBlanc
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Name:
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Claude LeBlanc
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Title:
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President and Chief Executive Officer
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By:
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/s/ David Trick
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Name:
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David Trick
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Title:
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Executive Vice President and Chief Financial Officer
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Dated:
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February 28, 2019
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