FORM
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10-K
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☒
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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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Commission File Number:
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1-10777
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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 World Trade Center
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New York
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NY
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10007
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(Address of principal executive offices)
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(Zip code)
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(212)
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658-7470
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(Registrant’s telephone number, including area code)
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Title of each class
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Trading Symbols
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Name of each exchange on which registered
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Common Stock, par value $0.01 per share
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AMBC
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New York Stock Exchange
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Warrants
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AMBC WS
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New York Stock Exchange
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Large accelerated filer
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☒
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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 capital and liability structures;
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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 and adjustments focused on improving 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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Cleared swaps, futures and OTC derivatives with bank counterparties require margin or collateral to be posted up to
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•
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Credit risk associated with financial guarantee customer derivatives and credit derivatives, is managed through the risk management processes described in the Risk Management Group section below. In some cases, interest rate derivatives between Ambac and financial guarantee customers are placed through a third party financial intermediary and similarly do not require collateral posting.
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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 independent auditors Ambac's critical 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) and with setting financial incentives that do not motivate undue risk-taking.
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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 business ethics and compliance program, and reviews compliance with Ambac’s Code of Business Conduct.
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•
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The Strategy Committee oversees the management of risk and risk appetite primarily with respect to strategic plans and initiatives.
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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. Additionally, the Risk Committee will provide oversight and review new risk remediation structures or approaches in connection with risk remediation plans or anticipated transactions. 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 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 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. Members of the Disclosure Committee include the Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer, Head of Risk Management and senior managers from throughout finance, legal, risk and corporate services.
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2019
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2018
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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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215
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5.4
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%
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$
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880
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5.6
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%
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Corporate securities
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1,430
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4.6
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%
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1,278
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5.6
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%
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Foreign obligations
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44
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0.8
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%
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31
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1.1
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%
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U.S. government obligations
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156
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2.0
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%
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94
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1.9
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%
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Residential mortgage-backed securities
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248
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8.9
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%
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259
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10.2
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%
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Asset-backed securities
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484
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5.6
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%
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574
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7.9
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%
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Total long-term investments
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2,577
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5.0
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%
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3,116
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6.2
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%
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Short-term investments
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737
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1.5
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%
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430
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2.5
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%
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Other investments (3)
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478
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—
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%
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391
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—
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%
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Total
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$
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3,792
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4.2
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%
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$
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3,937
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5.7
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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 fixed-income 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 interests in pooled investment funds that are either classified as trading securities or are reported under the equity method and Ambac's interests in an unconsolidated trust created in connection with its sale of junior surplus notes on August 28, 2014.
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Page
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Risks Related to AFG 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;
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•
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the impact or perceived impact of any acquisition, disposition or other strategic transaction, including entry into a new line of business, on the value or long-term prospects of the Company; 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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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 employees; and
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limit our ability to enter into hedging transactions by reducing the number of counterparties with whom we can enter into such transactions, as well as the volume of those transactions.
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•
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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 2019
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November 2019
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December 2019
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Fourth Quarter 2019
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Total Shares Purchased (1)
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1,259
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—
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857
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2,116
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Average Price Paid Per Share
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$
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19.14
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—
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20.97
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$
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19.88
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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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—
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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, 2019. AFG does not have a stock repurchase program.
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December 31,
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||||||||||
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2014
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2015
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2016
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2017
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2018
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2019
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Ambac Financial Group, Inc.
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$100
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$58
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$92
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$65
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$70
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$88
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Russell 2000 Index
|
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$100
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$94
|
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$113
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$128
|
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$113
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$139
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S&P Completion Index
|
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$100
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$95
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$109
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$127
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$113
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$143
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Year Ended December 31,
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||||||||||||||||||
($ in millions, except per share data)
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2019
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2018
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2017
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2016
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2015
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||||||||||
Total Comprehensive Income (Loss) Highlights:
|
|
|
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||||||||||
Gross premiums written
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$
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(28
|
)
|
|
$
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(24
|
)
|
|
$
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(14
|
)
|
|
$
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(54
|
)
|
|
$
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(38
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)
|
Net premiums earned
|
|
66
|
|
|
111
|
|
|
175
|
|
|
197
|
|
|
313
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|
|||||
Net investment income (2)
|
|
227
|
|
|
273
|
|
|
361
|
|
|
313
|
|
|
266
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|
|||||
Other than temporary impairment losses
|
|
—
|
|
|
(3
|
)
|
|
(20
|
)
|
|
(22
|
)
|
|
(26
|
)
|
|||||
Net realized investment gains
|
|
81
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|
|
112
|
|
|
5
|
|
|
39
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|
|
53
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|
|||||
Net gains (losses) on derivative contracts
|
|
(50
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)
|
|
7
|
|
|
76
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|
|
(30
|
)
|
|
(1
|
)
|
|||||
Net realized (losses) gains on extinguishment of debt (2)
|
|
—
|
|
|
3
|
|
|
5
|
|
|
5
|
|
|
—
|
|
|||||
Income (loss) on Variable Interest Entities ("VIEs")
|
|
38
|
|
|
3
|
|
|
20
|
|
|
(14
|
)
|
|
32
|
|
|||||
Other income (3)
|
|
134
|
|
|
5
|
|
|
—
|
|
|
18
|
|
|
7
|
|
|||||
Losses and loss expenses (benefit) (1) (2)
|
|
13
|
|
|
(224
|
)
|
|
513
|
|
|
(11
|
)
|
|
(769
|
)
|
|||||
Operating expenses (2)
|
|
103
|
|
|
112
|
|
|
122
|
|
|
114
|
|
|
103
|
|
|||||
Interest expense (2)
|
|
269
|
|
|
242
|
|
|
120
|
|
|
124
|
|
|
117
|
|
|||||
Insurance intangible amortization
|
|
295
|
|
|
107
|
|
|
151
|
|
|
175
|
|
|
170
|
|
|||||
Goodwill impairment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
515
|
|
|||||
Pre-tax income (loss)
|
|
(183
|
)
|
|
273
|
|
|
(284
|
)
|
|
105
|
|
|
510
|
|
|||||
Net income (loss)
|
|
(216
|
)
|
|
267
|
|
|
(329
|
)
|
|
74
|
|
|
493
|
|
|||||
Net income (loss) attributable to Common Shareholders
|
|
(216
|
)
|
|
186
|
|
|
(329
|
)
|
|
75
|
|
|
493
|
|
|||||
Total comprehensive income attributable to Ambac Financial Group, Inc.
|
|
(125
|
)
|
|
192
|
|
|
(335
|
)
|
|
21
|
|
|
288
|
|
|||||
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Basic
|
|
$
|
(4.69
|
)
|
|
$
|
4.07
|
|
|
$
|
(7.25
|
)
|
|
$
|
1.66
|
|
|
$
|
10.92
|
|
Diluted
|
|
$
|
(4.69
|
)
|
|
$
|
3.99
|
|
|
$
|
(7.25
|
)
|
|
$
|
1.64
|
|
|
$
|
10.72
|
|
(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, 2019, 2018, 2017, 2016 and 2015 were $42, $62, $72, $(71), and $(304), respectively.
|
(2)
|
On February 12, 2018, Ambac Assurance executed the Rehabilitation Exit Transactions (as defined in Note 1. Background and Business Description to the Consolidated Financial Statements included in Part II, Item 8 of this Annual Report on Form 10-K). These transactions directly resulted in: (i) a Loss and loss expense benefit of $288; (ii) operating expenses of $17 and (iii) realized gains on extinguishment of debt of $3. 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.
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(3)
|
Other income also includes proceeds received by Ambac Assurance in September 2019 in connection with an SEC action against Citigroup Global Markets Inc. in the amount of $142. Refer to Note 17. Commitments and Contingencies located in Part II Item 8 in this Form 10-K for further details on the SEC action.
|
($ in millions) December 31
|
2019
|
|
2018
|
|
2017
|
|
2016
|
|
2015
|
||||||||||
Balance Sheet Highlights:
|
|
|
|
|
|
|
|
|
|
||||||||||
Total non-variable interest entity investments
|
$
|
3,792
|
|
|
$
|
3,937
|
|
|
$
|
5,741
|
|
|
$
|
6,500
|
|
|
$
|
5,645
|
|
Cash and cash equivalents
|
24
|
|
|
63
|
|
|
624
|
|
|
91
|
|
|
36
|
|
|||||
Premium receivable
|
416
|
|
|
495
|
|
|
586
|
|
|
661
|
|
|
832
|
|
|||||
Insurance intangible asset
|
427
|
|
|
719
|
|
|
847
|
|
|
962
|
|
|
1,212
|
|
|||||
Subrogation recoverable (1)
|
2,029
|
|
|
1,933
|
|
|
631
|
|
|
685
|
|
|
1,229
|
|
|||||
Deferred ceded premium
|
82
|
|
|
61
|
|
|
52
|
|
|
70
|
|
|
97
|
|
|||||
Total VIE assets
|
6,286
|
|
|
7,093
|
|
|
14,501
|
|
|
13,368
|
|
|
14,288
|
|
|||||
Total assets
|
13,320
|
|
|
14,589
|
|
|
23,192
|
|
|
22,636
|
|
|
23,728
|
|
|||||
Unearned premiums
|
518
|
|
|
630
|
|
|
783
|
|
|
967
|
|
|
1,280
|
|
|||||
Loss and loss expense reserves (1)
|
1,548
|
|
|
1,826
|
|
|
4,745
|
|
|
4,381
|
|
|
4,088
|
|
|||||
Long-term debt (2)
|
2,822
|
|
|
2,929
|
|
|
992
|
|
|
1,114
|
|
|
1,125
|
|
|||||
Derivative liabilities
|
90
|
|
|
77
|
|
|
83
|
|
|
319
|
|
|
353
|
|
|||||
Total VIE liabilities
|
6,212
|
|
|
6,981
|
|
|
14,366
|
|
|
13,235
|
|
|
14,260
|
|
|||||
Total liabilities
|
11,783
|
|
|
12,956
|
|
|
21,547
|
|
|
20,658
|
|
|
21,770
|
|
|||||
Total stockholders’ equity
|
1,536
|
|
|
1,633
|
|
|
1,645
|
|
|
1,978
|
|
|
1,958
|
|
|||||
Total liabilities and stockholders' equity
|
$
|
13,320
|
|
|
$
|
14,589
|
|
|
$
|
23,192
|
|
|
$
|
22,636
|
|
|
$
|
23,728
|
|
(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 ("R&W"). Ambac has recorded gross estimated R&W recoveries of $1,727, $1,771, $1,834, $1,907, and $2,830 at December 31, 2019, 2018, 2017, 2016 and 2015, respectively.
|
(2)
|
Long-term debt includes Ambac Assurance surplus notes and junior surplus notes, the Ambac Note and Tier 2 Notes issued in connection with the Rehabilitation Exit Transactions in 2018 and the Ambac UK debt issued in connection with the Ballantyne commutation in 2019. Long-term debt for all years excludes the portion of long-term debt associated with variable interest entities.
|
•
|
The COFINA Plan of Adjustment ("POA"). On February 12, 2019, the POA, including certain related commutation transactions, and subsequent distributions, became effective, resulting in a reduction of Ambac Assurance's insured net par exposure to COFINA by approximately 77% or $620 million. Subsequent redemptions of obligations of the COFINA Class 2 Trust (as further described in the Financial Guarantees in Force section included in Part II, Item 7 in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019) brought COFINA net par outstanding down to $101 million as of December 31, 2019;
|
•
|
An Irish scheme of arrangement (the "Arrangement") on June 17, 2019, for the restructuring of Ballantyne Re plc ("Ballantyne"). This restructuring allowed for the commutation of $900 million of Ambac UK's net par outstanding. See below under Financial Guarantees in Force for further details of the Arrangement;
|
•
|
Purchasing quota share reinsurance in September 2019 to sculpt the risk profile of the insured portfolio. This included ceding certain public finance exposures totaling $1.2 billion of par exposure (principal and interest of $2.4 billion), which were comprised of lease and tax-backed revenue ($616 million par), general obligation ($374 million par), transportation ($240 million par) and higher education ($4 million par) exposures and included $509 million par of watch list and adversely classified credits;
|
•
|
Purchasing quota share reinsurance in December 2019 for $228 million of par exposure, including $153 million of watch list credits;
|
•
|
Completing work in January 2019, with an issuer to refinance two watch list asset-backed lease securitizations with net par outstanding of $95 million at December 31, 2018;
|
•
|
A commutation in February 2019, via a refunding, of an adversely classified public finance transaction with net par outstanding of $350 million at December 31, 2018;
|
•
|
Working with an issuer and noteholders to negotiate the removal of the guarantee from a tranche of notes on a Watch List credit in December 2019 with net par of $300 million outstanding at December 31, 2018;
|
•
|
Working closely with servicers and owners of Master Servicing Rights to exercise their clean-up call rights on several watch list and adversely classified RMBS transactions with total net par outstanding of $200 million at December 31, 2018; and
|
•
|
The final paydown, refunding, or partial commutation of various watch list exposures and adversely classified exposures that were subject to risk remediation efforts with total net par outstanding at December 31, 2018 of $463 million.
|
($ in millions)
|
|
|
||
Cash and short-term investments
|
|
$
|
327
|
|
Other investments (1)
|
|
116
|
|
|
Other net assets (2)
|
|
40
|
|
|
Total
|
|
$
|
483
|
|
(1)
|
Includes surplus notes (fair value of $63) 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 of $28.
|
(1)
|
A portion of Ambac UK's, and to a lesser extent Ambac Assurance's, assets and liabilities are denominated in currencies other than its functional currency and accordingly, we recognized net foreign currency transaction gains/(losses) as a result of changes to foreign currency rates through our Consolidated Statement of Total Comprehensive Income (Loss). Refer to Note 2. Basis of Presentation and Significant Accounting Policies to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K for further details on transaction gains and losses.
|
|
|
2019
|
|
2018
|
||||||||||||
($ 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) |
||||||||
RMBS
|
|
$
|
3,027
|
|
|
$
|
(1,392
|
)
|
|
$
|
3,716
|
|
|
$
|
(1,313
|
)
|
Domestic Public Finance
|
|
2,398
|
|
|
627
|
|
|
3,987
|
|
|
639
|
|
||||
Student Loans
|
|
472
|
|
|
208
|
|
|
530
|
|
|
228
|
|
||||
Ambac UK and Other Credits
|
|
271
|
|
|
3
|
|
|
1,170
|
|
|
273
|
|
||||
Loss expenses
|
|
—
|
|
|
73
|
|
|
—
|
|
|
66
|
|
||||
Totals
|
|
$
|
6,168
|
|
|
$
|
(482
|
)
|
|
$
|
9,403
|
|
|
$
|
(107
|
)
|
(1)
|
Ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves are $511 and $26 respectively, at December 31, 2019 and $540 and $23, respectively at December 31, 2018. 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, 2019 of $(482) are included in the balance sheet in the following line items: Loss and loss expense reserves: $1,548 and Subrogation recoverable: $2,029. 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.
|
(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 $1,727 and $1,771 at December 31, 2019 and 2018, respectively.
|
($ in millions) December 31,
|
2019
|
|
2018
|
||||
Public Finance (1)(2)
|
$
|
17,653
|
|
|
$
|
23,442
|
|
Structured Finance
|
7,508
|
|
|
9,947
|
|
||
International Finance
|
12,857
|
|
|
13,538
|
|
||
Total net par outstanding
|
$
|
38,018
|
|
|
$
|
46,927
|
|
(1)
|
Includes $5,654 and $5,759 of Military Housing net par outstanding at December 31, 2019 and 2018, respectively.
|
(2)
|
Includes $1,123 and $1,880 of Puerto Rico net par outstanding at December 31, 2019 and 2018, respectively. Components of Puerto
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac. In cases where Ambac 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 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)
|
A portion of this transaction is insured by an insurance policy issued by Ambac Assurance. Ambac Assurance has issued policies for these transactions that will only pay in the event that Ambac UK does not pay under its insurance policies (“second to pay policies").
|
•
|
Ambac insures approximately $5,654 million net par of privatized military housing debt. The debt was issued to finance the construction and/or renovation of housing units for military personnel and their families on domestic U.S. military bases. Debt service is not directly paid or guaranteed by the U.S. Government. Rather, the bonds are serviced from the cash flow generated in most cases by rental payments deposited by the military directly into lockbox accounts as part of each service personnel’s Basic Allowance for Housing (BAH). In a small number of cases rental payments also come from civilians, including retired service personnel, living on a particular base. Collateral for these transactions includes the BAH payments as well as an interest in the ground lease. Risk factors affecting these transactions include ongoing base essentiality, military deployments, the U.S. government’s commitment to fund the BAH, marketability/attractiveness of the on-base housing units versus off-base housing, construction completion, environmental remediation, utility and other operating costs and housing management. Ambac's exposure to privatized military housing debt is a growing concentration given the long-dated maturity profile of the exposure relative to faster run-off of other parts of Ambac's insured portfolio. As of December 31, 2019, privatized military housing represented approximately 15% of net par outstanding.
|
($ 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)
|
|
2020-2042
|
|
BIG
|
|
405
|
|
|
677
|
|
|
106
|
|
|||
PR Infrastructure Financing Authority (Special Tax Revenue) (7)
|
|
2020-2044
|
|
BIG
|
|
404
|
|
|
903
|
|
|
172
|
|
|||
PR Convention Center District Authority (Hotel Occupancy Tax)
|
|
2020-2031
|
|
BIG
|
|
100
|
|
|
146
|
|
|
49
|
|
|||
Total
|
|
|
|
|
|
913
|
|
|
1,736
|
|
|
350
|
|
|||
Exposures Not Subject to Priority Debt Provision
|
|
|
|
|
|
|
|
|
|
|
||||||
Commonwealth of Puerto Rico - General Obligation Bonds
|
|
2020-2023
|
|
BIG
|
|
25
|
|
|
27
|
|
|
41
|
|
|||
PR Public Buildings Authority - Guaranteed by the Commonwealth of Puerto Rico
|
|
2020-2035
|
|
BIG
|
|
84
|
|
|
150
|
|
|
79
|
|
|||
PR Sales Tax Financing Corporation - Senior Sales Tax Revenue (COFINA)
|
|
2047-2054
|
|
BIG
|
|
101
|
|
|
900
|
|
|
37
|
|
|||
Total
|
|
|
|
|
|
210
|
|
|
1,077
|
|
|
157
|
|
|||
Total Net Exposure to The Commonwealth of
Puerto Rico and Related Entities
|
|
|
|
|
|
$
|
1,123
|
|
|
$
|
2,813
|
|
|
$
|
507
|
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac. In cases where Ambac 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 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 $220 at December 31, 2019.
|
(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 $23 in January 2020.
|
(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 the event Commonwealth available revenues and any 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, including debt service on the obligations subject to such provision as described above (to the extent payable from such revenues), 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, 2020, from its prior December 31, 2019, 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 $60 net par of PR Public Building Authority ("PBA") bonds with a maturity date of July 1, 2035, resulting from the absence of a remarketing. Should a remarketing not occur before the maturity of the bonds, the Net Par
|
•
|
the novation of the indemnity reinsurance agreement between Ballantyne and SLD dated November 19, 2008, (as amended) to SRLHA (the "Novation");
|
•
|
the disbursement of the assets from Ballantyne's reinsurance trust account to effectuate the Novation and make payment to the holders of Scheme Notes in full and final satisfaction of their claims against Ballantyne; and
|
•
|
the commutation of the obligations of Ambac UK in respect of the Ambac UK Guaranteed Notes.
|
Net Par Outstanding Amortization (1)
($ in millions)
|
|
Estimated Net
Amortization
|
||
2020
|
|
$
|
3,092
|
|
2021
|
|
2,857
|
|
|
2022
|
|
2,750
|
|
|
2023
|
|
1,749
|
|
|
2024
|
|
2,107
|
|
|
|
|
|
||
2020-2024
|
|
$
|
12,555
|
|
2025-2029
|
|
7,755
|
|
|
2030-2034
|
|
5,996
|
|
|
2035-2039
|
|
7,834
|
|
|
After 2039
|
|
3,878
|
|
|
Total
|
|
$
|
38,018
|
|
(1)
|
Depicts amortization of existing guaranteed portfolio, assuming no advance refundings, as of December 31, 2019. 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)
|
$
|
4,531
|
|
|
11.9
|
%
|
California
|
2,556
|
|
|
6.7
|
%
|
|
Colorado
|
2,396
|
|
|
6.3
|
%
|
|
New York
|
2,331
|
|
|
6.1
|
%
|
|
New Jersey
|
1,487
|
|
|
3.9
|
%
|
|
Texas
|
1,289
|
|
|
3.4
|
%
|
|
Puerto Rico
|
1,123
|
|
|
3.0
|
%
|
|
Pennsylvania
|
916
|
|
|
2.4
|
%
|
|
Washington
|
833
|
|
|
2.2
|
%
|
|
Florida
|
754
|
|
|
2.0
|
%
|
|
Illinois
|
709
|
|
|
1.9
|
%
|
|
Other domestic
|
6,236
|
|
|
16.4
|
%
|
|
Total Domestic
|
25,161
|
|
|
66.2
|
%
|
|
International:
|
|
|
|
|||
United Kingdom
|
10,593
|
|
|
27.9
|
%
|
|
Italy
|
767
|
|
|
2.0
|
%
|
|
Austria
|
674
|
|
|
1.8
|
%
|
|
Australia
|
382
|
|
|
1.0
|
%
|
|
France
|
303
|
|
|
0.8
|
%
|
|
Other international (2)
|
138
|
|
|
0.4
|
%
|
|
Total International Finance
|
12,857
|
|
|
33.8
|
%
|
|
Total
|
$
|
38,018
|
|
|
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)
|
Other international 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
|
$
|
25,559
|
|
|
$
|
25,559
|
|
|
67.2
|
%
|
British Pounds
|
£
|
7,813
|
|
|
10,344
|
|
|
27.2
|
%
|
|
Euros
|
€
|
1,545
|
|
|
1,733
|
|
|
4.6
|
%
|
|
Australian Dollars
|
A$
|
545
|
|
|
382
|
|
|
1.0
|
%
|
|
Total
|
|
|
$
|
38,018
|
|
|
100.0
|
%
|
(1)
|
Internal credit ratings are provided solely to indicate the underlying credit quality of guaranteed obligations based on the view of Ambac. In cases where Ambac 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 credit ratings are subject to revision at any time and do not constitute investment advice. BIG denotes credits deemed below investment grade.
|
|
Net Par Outstanding - December 31,
|
||||||
Bond Type ($ in millions)
|
2019
|
|
2018
|
||||
Public Finance:
|
|
|
|
||||
Lease and tax-backed (1)
|
$
|
1,109
|
|
|
$
|
2,025
|
|
General obligation (1)
|
525
|
|
|
434
|
|
||
Housing (2)
|
311
|
|
|
314
|
|
||
Transportation
|
27
|
|
|
378
|
|
||
Health care
|
—
|
|
|
25
|
|
||
Other
|
42
|
|
|
146
|
|
||
Total Public Finance
|
2,014
|
|
|
3,322
|
|
||
Structured Finance:
|
|
|
|
||||
RMBS
|
3,362
|
|
|
4,205
|
|
||
Structured Insurance
|
—
|
|
|
900
|
|
||
Student loans
|
620
|
|
|
714
|
|
||
Other
|
33
|
|
|
53
|
|
||
Total Structured Finance
|
4,015
|
|
|
5,872
|
|
||
International Finance:
|
|
|
|
||||
Other
|
1,455
|
|
|
924
|
|
||
Total International Finance
|
1,455
|
|
|
924
|
|
||
Total
|
$
|
7,484
|
|
|
$
|
10,118
|
|
(1)
|
Lease and tax-backed includes $1,014 and $1,735 of Puerto Rico net par at December 31, 2019 and 2018, respectively. General obligation includes $109 and $145 of Puerto Rico net par at December 31, 2019 and 2018, respectively. Puerto Rico net par outstanding includes capital appreciation bonds which are reported at the par amount at the time of issuance of the related insurance policy as opposed to the current accreted value of the bonds.
|
(2)
|
Includes $311 and $314 of military housing net par at December 31, 2019 and 2018, respectively.
|
Bond Type ($ in millions)
|
Ceded Par
Amount
Outstanding
|
|
% of Gross
Par Ceded
|
|||
Public Finance:
|
|
|
|
|||
General obligation
|
$
|
1,571
|
|
|
34
|
%
|
Lease and tax-backed revenue
|
1,422
|
|
|
22
|
%
|
|
Housing revenue
|
945
|
|
|
14
|
%
|
|
Transportation revenue
|
564
|
|
|
40
|
%
|
|
Utility revenue
|
249
|
|
|
25
|
%
|
|
Higher education
|
182
|
|
|
17
|
%
|
|
Other
|
102
|
|
|
14
|
%
|
|
Total Public Finance
|
5,035
|
|
|
22
|
%
|
|
Structured Finance:
|
|
|
|
|||
Student loan
|
281
|
|
|
27
|
%
|
|
Investor-owned utilities
|
225
|
|
|
12
|
%
|
|
Structured insurance
|
147
|
|
|
27
|
%
|
|
Asset-backed and other
|
106
|
|
|
49
|
%
|
|
Mortgage-backed and home equity
|
49
|
|
|
1
|
%
|
|
Total Structured Finance
|
808
|
|
|
10
|
%
|
|
Total Domestic
|
5,843
|
|
|
19
|
%
|
|
International Finance:
|
|
|
|
|||
Investor-owned and public utilities
|
24
|
|
|
1
|
%
|
|
Transportation
|
22
|
|
|
1
|
%
|
|
Asset-backed
|
1
|
|
|
—
|
%
|
|
Total International Finance
|
47
|
|
|
—
|
%
|
|
Total
|
$
|
5,890
|
|
|
13
|
%
|
($ in millions)
Year Ended December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Net premiums earned
|
$
|
66
|
|
|
$
|
111
|
|
|
$
|
175
|
|
Net investment income
|
227
|
|
|
273
|
|
|
361
|
|
|||
Net other-than-temporary impairment losses
|
—
|
|
|
(3
|
)
|
|
(20
|
)
|
|||
Net realized investment gains (losses)
|
81
|
|
|
112
|
|
|
5
|
|
|||
Net gains (losses) on derivative contracts
|
(50
|
)
|
|
7
|
|
|
76
|
|
|||
Other income (expense) (2)
|
134
|
|
|
8
|
|
|
5
|
|
|||
Income (loss) on variable interest entities
|
38
|
|
|
3
|
|
|
20
|
|
|||
Expenses:
|
|
|
|
|
|
||||||
Losses and loss expenses (benefit)
|
13
|
|
|
(224
|
)
|
|
513
|
|
|||
Insurance intangible amortization
|
295
|
|
|
107
|
|
|
151
|
|
|||
Operating expenses
|
103
|
|
|
112
|
|
|
122
|
|
|||
Interest expense
|
269
|
|
|
242
|
|
|
120
|
|
|||
Provision for income taxes
|
32
|
|
|
5
|
|
|
44
|
|
|||
Net income (loss)
|
(216
|
)
|
|
267
|
|
|
(329
|
)
|
|||
Less: exchange of auction market preferred shares (1)
|
—
|
|
|
82
|
|
|
—
|
|
|||
Net income (loss) attributable to common stockholders
|
$
|
(216
|
)
|
|
$
|
186
|
|
|
$
|
(329
|
)
|
(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 2018 for approximately $82. Refer to Note 1. Background and Business Description for a discussion of the AMPS Exchange.
|
(2)
|
2019 includes proceeds received in connection with an SEC action against Citigroup Global Markets Inc. in the amount of $142 million. 2018 and 2017 include net realized gains on extinguishment of debt.
|
•
|
The runoff of the insured portfolio occurring through transaction terminations, calls and scheduled maturities, which reduce normal net premiums earned.
|
•
|
Pre-refundings of insured securities, primarily Public Finance transactions. Since the maturity date of pre-refunded securities is shortened (to a specified call date from its previous legal maturity), normal net premiums earned will increase over the remaining period of the related policy.
|
•
|
New ceded reinsurance of insurance risk which reduces normal net premiums earned over the remaining period of the related policies.
|
•
|
Changes to allowance for uncollectible premiums on premium receivable asset.
|
•
|
The strengthening or weakening of the U.S. dollar relative to the British Pound since Ambac's wholly-owned UK subsidiary, Ambac UK, operates in the United Kingdom and the British Pound is its functional currency.
|
($ in millions)
Year Ended December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Public finance
|
$
|
27
|
|
|
$
|
37
|
|
|
$
|
62
|
|
Structured finance
|
10
|
|
|
17
|
|
|
22
|
|
|||
International finance
|
19
|
|
|
23
|
|
|
27
|
|
|||
Total net normal premiums earned
|
$
|
56
|
|
|
$
|
77
|
|
|
$
|
111
|
|
Public Finance
|
$
|
25
|
|
|
$
|
29
|
|
|
$
|
47
|
|
Structured Finance
|
(7
|
)
|
|
5
|
|
|
3
|
|
|||
International Finance
|
(8
|
)
|
|
1
|
|
|
15
|
|
|||
Total net accelerated earnings
|
$
|
10
|
|
|
$
|
35
|
|
|
$
|
65
|
|
Total net premiums earned
|
$
|
66
|
|
|
$
|
111
|
|
|
$
|
175
|
|
2019
|
|
2018
|
|
2017
|
|||||||
Securities available-for-sale: Ambac-insured (including Secured Notes)
|
$
|
121
|
|
|
$
|
220
|
|
|
$
|
262
|
|
Securities available-for-sale and short-term other than Ambac-insured
|
75
|
|
|
51
|
|
|
76
|
|
|||
Other investments (includes trading securities)
|
32
|
|
|
2
|
|
|
23
|
|
|||
Net investment income
|
$
|
227
|
|
|
$
|
273
|
|
|
$
|
361
|
|
($ in millions)
Year Ended December 31, |
2019
|
|
2018
|
|
2017
|
||||||
Net gains (losses) on interest rate derivatives
|
$
|
(51
|
)
|
|
$
|
7
|
|
|
$
|
60
|
|
Net gains (losses) on credit derivatives
|
2
|
|
|
(1
|
)
|
|
16
|
|
|||
Total net gains (losses)
|
$
|
(50
|
)
|
|
$
|
7
|
|
|
$
|
76
|
|
•
|
Income on variable interest entities for the year ended December 31, 2019, was driven by the impact of a VIE created in connection with the restructuring of Puerto Rico COFINA debt. Under the restructuring, Ambac-insured COFINA bonds that were not commuted were deposited into a newly formed trust called the COFINA Class 2 Trust ("COFINA Trust"), which Ambac has determined must be consolidated. Refer to Part II, Item 7, “Management's Discussion and Analysis — Financial Guarantees in Force" in this report on Form 10-K for further discussion of the COFINA Debt Restructuring. Income from COFINA Trust for the the year ended December 31, 2019, was $26 million, including $15 million from consolidation and $13 million from realized investment gains on sales of assets from the trust used for early redemptions of debt, partially offset by net interest expense and fees. Income for the year ended December 31, 2019, also included a gain on the fair value of net assets of a VIE arising from an increase in projected cash flows on the VIE's assets related to higher financial guarantee insurance premiums. Results for 2019 also included a loss of $2 million from deconsolidation of a VIE.
|
•
|
Income on variable interest entities for the year ended December 31, 2018, included gains of $2 million on deconsolidation of VIEs as a result of financial guarantee policy terminations and discount accretion on remaining VIE net assets.
|
(1)
|
The loss and loss expense (benefit) associated with changes in estimated representation and warranties for the year ended December 31, 2019 and 2018 was $42 and $62, respectively.
|
(2)
|
Includes loss expenses incurred of $78 and $92 for the year ended December 31, 2019 and 2018, respectively.
|
•
|
Higher projected losses in domestic public finance driven mostly by lower discount rates and additions to Puerto Rico loss reserves, partially offset by;
|
•
|
Favorable development within Ambac UK and Other Credits primarily due to the Ballantyne commutation;
|
•
|
Favorable RMBS development as a result of credit improvement, the impact on excess spread from declines in interest rates and a trustee settlement related to Lehman sponsored transactions, partially offset by RMBS R&W litigation loss expenses incurred and a reduction to estimated RMBS R&W subrogation recoveries.
|
•
|
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, which was more than 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).
|
•
|
Lower non-compensation costs primarily due to reduced advisory costs of $15 million, of which $5 million relates to
|
•
|
Higher compensation costs related to higher incentive compensation driven by (i) improvements in performance metrics, mostly related to Ambac UK incentive compensation and (ii) higher severance and post employment costs related to staff right-sizing.
|
(1)
|
Includes junior surplus notes.
|
•
|
The increase in interest expense for the year ended December 31, 2019, compared to 2018 primarily reflects the higher average balance of surplus notes outstanding in 2019 and compounding of interest on surplus notes. Although the amount of surplus notes outstanding decreased in connection with the Rehabilitation Exit Transactions, the amount outstanding increased in the third quarter of 2018 due to surplus notes issued by Ambac Assurance in connection with the AMPS Exchange (as defined in Note 1. Background and Business Description to the Consolidated Financial Statements included in Part II, Item 8 in this Form 10-K) and resales of notes by Ambac to the market.
|
•
|
Increased interest expense on the floating rate Ambac note was driven by higher reset rates in 2019 and the impact of the notes being outstanding for the full year, partially offset by optional redemptions and full amortization of deferred debt issuance costs through interest expense in 2018.
|
•
|
Interest expense increased on the Tier 2 notes due primarily to interest compounding. The increase in interest expense also reflects the impact of applying the level yield method on surplus notes and Tier 2 notes as the discount to the face value of the long-term debt accretes over time.
|
•
|
Pursuant to the amended and restated tax sharing agreement among AFG, Ambac Assurance and certain affiliates (the "Amended TSA"), Ambac Assurance is required to make payments ("tolling payments") to AFG with respect to the utilization of net operating loss carry-forwards (“NOLs”). AFG has accrued $28 million of tolling payments based on NOLs used by Ambac Assurance in 2017. In May 2018, AFG executed a waiver under the intercompany tax sharing agreement pursuant to which Ambac Assurance was relieved of the requirement to make this payment by June 1, 2018. AFG also agreed to defer the tolling payment for the use of net operating losses by Ambac Assurance in 2017 until such time as OCI consents to the payment.
|
•
|
Under an inter-company cost allocation agreement, AFG is reimbursed by Ambac Assurance for a portion of certain operating costs and expenses and, if approved by OCI, entitled to an additional payment of up to $4 million per year to cover expenses not otherwise reimbursed. AFG has not accrued any receivable related to this payment as of December 31, 2019.
|
|
Payments Due by Period
|
||||||||||||||||||
($ in millions)
|
Total
|
|
Less Than 1 Year
|
|
1 - 3 Years
|
|
3 - 5 Years
|
|
More Than 5 Years
|
||||||||||
Surplus note obligations(1)
|
$
|
3,841
|
|
|
$
|
851
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2,990
|
|
Ambac note obligations(2)
|
2,144
|
|
|
122
|
|
|
245
|
|
|
1,777
|
|
|
—
|
|
|||||
Tier 2 note obligations(3)
|
5,394
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5,394
|
|
|||||
Ambac UK debt obligations(4)
|
41
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
41
|
|
|||||
Operating lease obligations(5)
|
46
|
|
|
4
|
|
|
9
|
|
|
9
|
|
|
24
|
|
|||||
Purchase obligations(6)
|
9
|
|
|
8
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Postretirement benefits(7)
|
5
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
3
|
|
|||||
Loss and loss expenses(8)
|
2,434
|
|
|
159
|
|
|
139
|
|
|
172
|
|
|
1,964
|
|
|||||
Income taxes
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||
Total
|
$
|
13,914
|
|
|
$
|
1,144
|
|
|
$
|
394
|
|
|
$
|
1,959
|
|
|
$
|
10,416
|
|
(1)
|
Amounts on surplus notes (excluding junior surplus notes) include principal on their scheduled maturity date and interest on scheduled payment dates, including payment of previously deferred interest totaling $279 million on the next scheduled payment date of June 7, 2020. 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. Since the issuance of the surplus notes in 2010, OCI has declined to approve regular payments of interest on surplus notes annually from 2011 through 2019, although the OCI has permitted exceptional payments in connection with (a) increasing the percentage of deferred policy payments of the Segregated Account from 25% to 45% in 2014 and (b) a one-time payment of approximately six months of interest on the surplus notes outstanding immediately after the Rehabilitation Exit Transactions in 2018. Ambac Assurance may not receive approval from OCI to make payments as and when scheduled, including the payment of the surplus notes on their scheduled maturity date of June 7, 2020. If the OCI does not approve the making of any payment of principal of or interest on surplus notes on the scheduled payment date or scheduled maturity date thereof, the scheduled payment date or scheduled maturity date, as the case may be, shall be extended until OCI grants approval to make the payment. Interest will accrue, compounded on each anniversary of the original scheduled payment date or scheduled
|
(2)
|
Includes principal on Ambac Note as of December 31, 2019 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 6.95% 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)
|
Includes principal on the zero coupon note payable on its legal maturity date of May 2, 2036.
|
(5)
|
Amount represents future lease payments on lease agreements existing as of December 31, 2019. Includes fixed costs, such as base rent, and estimated variable costs, such as real estate taxes and electricity.
|
(6)
|
Purchase obligations represent future expenditures for contractually scheduled fixed terms and amounts due for various technology-related maintenance agreements and other outside services.
|
(7)
|
Amount represents future payments relating to Ambac Assurance's postretirement medical reimbursements to current retirees over the next 10 years.
|
(8)
|
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. 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.
|
•
|
During the year ended December 31, 2019, Ambac Assurance received $142 million in connection with an SEC settlement with Citigroup Global Markets Inc.
|
•
|
During the year ended December 31, 2019, Ambac made interest payments on the Ambac Note of $143 million. During
|
•
|
Cash outflow in 2018 from the Rehabilitation Exit Transactions to third parties was $1,354 million of which $1,162 million is included in operating activities and $191 million is included in financing activities as it related to payments for surplus note principal;
|
•
|
Net loss and loss expenses paid, including commutation payments are detailed below:
|
($ in million)
Year Ended
December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Net losses paid (1)
|
$
|
416
|
|
|
$
|
344
|
|
|
$
|
311
|
|
Net subrogation received
|
(168
|
)
|
|
(140
|
)
|
|
(244
|
)
|
|||
Net loss expenses paid
|
70
|
|
|
117
|
|
|
67
|
|
|||
Net cash flow
|
$
|
318
|
|
|
$
|
321
|
|
|
$
|
134
|
|
(1)
|
Net losses paid include commutation payments of $214, $87 and $21 for the years ended December 31, 2019, 2018 and 2017, respectively.
|
(2)
|
For the year ended December 31, 2019, subrogation received includes $36 of settlement proceeds related to Lehman sponsored RMBS transactions and $23 related to the COFINA Plan of Adjustment.
|
•
|
During the year ended December 31, 2019 and 2018 tax payments, primarily at Ambac UK, amounted to $21 million and $35 million, respectively.
|
(1)
|
Includes investments denominated in non-US dollar currencies with a fair value of £257 ($341) and €2 ($2) as of December 31, 2019 and £204 ($259) and €14 ($16) as of December 31, 2018.
|
(1)
|
Includes investments guaranteed by Ambac Assurance and Ambac UK. 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 represented 33% and 57% of the 2019 and 2018 combined investment portfolios, respectively. The decrease in the percentage of below investment grade and increase in the percentage of AAA-rated holdings since December 31, 2018, was driven by the COFINA restructuring where below investment grade Ambac-insured bonds were exchanged for new COFINA non-rated bonds and cash, with a majority of the new non-rated bonds being sold prior to December 31, 2019. Cash proceeds from the restructuring and bond sales throughout the year were invested in, amongst other things, AAA-rated short-term investments, commercial mortgage-backed securities and collateralized debt obligations at December 31, 2019.
|
Currency
(Amounts in millions)
|
|
Premium Receivable in Payment Currency
|
|
Premium Receivable in U.S. dollars
|
||||
U.S. Dollars
|
|
$
|
261
|
|
|
$
|
261
|
|
British Pounds
|
|
£
|
97
|
|
|
129
|
|
|
Euros
|
|
€
|
23
|
|
|
26
|
|
|
Total
|
|
|
|
$
|
416
|
|
|
Present Value of Expected
Net Cash Flows |
|
Unearned
Premium Revenue |
|
Gross Loss
and Loss Expense Reserves |
||||||||||
($ in millions)
Balance Sheet Line Item |
Claims and
Loss Expenses |
|
Recoveries (1)
|
|
|||||||||||
December 31, 2019:
|
|
|
|
|
|
|
|
||||||||
Loss and loss expense reserves
|
$
|
1,835
|
|
|
$
|
(233
|
)
|
|
$
|
(54
|
)
|
|
$
|
1,548
|
|
Subrogation recoverable
|
131
|
|
|
(2,160
|
)
|
|
—
|
|
|
(2,029
|
)
|
||||
Totals
|
$
|
1,966
|
|
|
$
|
(2,394
|
)
|
|
$
|
(54
|
)
|
|
$
|
(482
|
)
|
|
|
|
|
|
|
|
|
||||||||
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
|
)
|
(1)
|
Present value of future recoveries include R&W subrogation recoveries of $1,727 and $1,771 at December 31, 2019 and 2018, respectively.
|
|
|
|
Present Value of Expected
Net Cash Flows |
|
Unearned
Premium Revenue |
|
Gross Loss
and Loss Expense Reserves (1)(3) |
||||||||||||
($ in millions)
|
Gross Par
Outstanding (1)(2) |
|
Claims and
Loss Expenses |
|
Recoveries
|
|
|||||||||||||
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
||||||||||
RMBS
|
$
|
3,027
|
|
|
$
|
634
|
|
|
$
|
(2,013
|
)
|
|
$
|
(13
|
)
|
|
$
|
(1,392
|
)
|
Domestic Public Finance
|
2,398
|
|
|
1,007
|
|
|
(344
|
)
|
|
(36
|
)
|
|
627
|
|
|||||
Student Loans
|
472
|
|
|
248
|
|
|
(36
|
)
|
|
(4
|
)
|
|
208
|
|
|||||
Ambac UK and Other Credits
|
271
|
|
|
4
|
|
|
—
|
|
|
(1
|
)
|
|
3
|
|
|||||
Loss expenses
|
—
|
|
|
73
|
|
|
—
|
|
|
—
|
|
|
73
|
|
|||||
Totals
|
$
|
6,168
|
|
|
$
|
1,966
|
|
|
$
|
(2,394
|
)
|
|
$
|
(54
|
)
|
|
$
|
(482
|
)
|
|
|
|
|
|
|
|
|
|
|
||||||||||
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
|
)
|
(1)
|
Ceded par outstanding on policies with loss reserves and ceded loss and loss expense reserves are $511 and $26 respectively, at December 31, 2019 and $540 and $23, respectively at December 31, 2018. Ceded loss and loss expense reserves are included in Reinsurance recoverable on paid and unpaid losses.
|
(2)
|
Gross Par Outstanding includes capital appreciation bonds, which are reported at the par amount at the time of issuance of the insurance policy as opposed to the current accreted value of the bond.
|
(3)
|
Loss reserves are included in the balance sheet as Loss and loss expense reserves or Subrogation recoverable dependent on if a policy is in a net liability or net recoverable position.
|
($ in millions)
Issuer Type
December 31,
|
2019
|
|
2018
|
||||||||||||
Gross Par
Outstanding (1) |
|
Gross Loss
Reserves |
|
Gross Par
Outstanding (1) |
|
Gross Loss
Reserves |
|||||||||
Lease and tax-backed
|
$
|
1,075
|
|
|
$
|
561
|
|
|
$
|
2,062
|
|
|
$
|
528
|
|
General obligation
|
681
|
|
|
(16
|
)
|
|
904
|
|
|
24
|
|
||||
Housing
|
457
|
|
|
29
|
|
|
445
|
|
|
26
|
|
||||
Transportation revenue
|
88
|
|
|
42
|
|
|
471
|
|
|
49
|
|
||||
Other
|
97
|
|
|
11
|
|
|
105
|
|
|
12
|
|
||||
Total
|
$
|
2,398
|
|
|
$
|
627
|
|
|
$
|
3,987
|
|
|
$
|
639
|
|
(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,
2019 |
|
December 31, 2018
|
||||
Surplus notes
|
|
$
|
769
|
|
|
$
|
737
|
|
Ambac note
|
|
1,763
|
|
|
1,940
|
|
||
Tier 2 notes
|
|
278
|
|
|
252
|
|
||
Ambac UK debt
|
|
13
|
|
|
—
|
|
||
Total Long-term Debt
|
|
$
|
2,822
|
|
|
$
|
2,929
|
|
•
|
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 for recurring Level 3 fair value measurements held at the end of the reporting period and 2) Range and weighted average of
|
•
|
For financial assets measured at amortized cost, the ASU replaces the "incurred loss" model, which generally delayed recognition of the full amount of credit losses until the loss was probable of occurring, with an "expected loss" model, which reflects an entity's current estimate of all expected lifetime credit losses. Expected lifetime credit losses for amortized cost assets will be recorded as a valuation allowance, with subsequent increases or decreases in the allowance reflected in net income each period.
|
•
|
For available-for-sale debt securities, credit losses under the ASU will be measured similarly to current GAAP. However, under the ASU, credit losses for available-for-sale debt securities will be recorded as a valuation allowance (similar to the amortized cost assets approach described above), rather than as a direct write-down of the security as is required under current GAAP. As a result, improvements to estimated credit losses for available-for-sale debt securities will be recognized immediately in net income rather than as interest income over time.
|
•
|
Statutory net loss of $225 million for the year ended December 31, 2019, primarily due to loss and loss expenses from net adverse development on the insured portfolio, operating expenses and impairment charges on loans to subsidiaries, partially offset by net investment gains and premiums earned;
|
•
|
Contributions to contingency reserves of $35 million; partially offset by
|
•
|
Surplus benefits for (i) Ambac Assurance's receipt in September 2019, in connection with an SEC action against Citibank Global Markets Inc., of $142 million, (ii) the recognition of a previous deferred gain from the 2015 sale of Ballantyne bonds to Ambac UK of $28 million and (iii) an increase of $17 million in the fair value of investment securities that are recorded at the lower of amortized cost or fair value.
|
•
|
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). Under GAAP, in addition to the establishment of loss reserves for defaulted obligations,
|
•
|
Mandatory contingency reserves are required based upon the type of obligation insured, whereas GAAP does not require such a reserve. Releases of the contingency reserves are generally subject to OCI approval and relate to a determination that the held reserves are deemed excessive.
|
•
|
Investment grade fixed income investments are stated at amortized cost and certain below investment grade fixed income investments are reported at the lower of amortized cost or fair value. Under GAAP, all fixed income investments are reported at fair value.
|
•
|
Wholly owned subsidiaries are not consolidated; rather, the equity basis of accounting is utilized and the carrying values of these investments are subject to admissibility tests.
|
•
|
Variable interest entities ("VIE") 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 Assurance 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.
|
•
|
Insurance intangibles that arose as a result of the implementation of Fresh Start reporting is not a concept within SAP. 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 5.23%) 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.
|
•
|
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, also subject to an other-than-temporary impairment evaluation.
|
•
|
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, investments in 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
|
•
|
Upfront premiums written are earned on a basis proportionate to the remaining scheduled debt service to the total principal and interest insured. Installment premiums are reflected in income pro-rata over the period covered by the premium payment. Under U.S. GAAP, premium revenues for both upfront and installment premiums are earned over the life of the financial guarantee contract in proportion to the insured principal amount outstanding at each reporting date.
|
•
|
Insurance intangibles that arose as a result of the implementation of Fresh Start reporting is not a concept within UK GAAP. Under U.S. GAAP, this insurance intangible asset is amortized as an expense on a level yield basis over the life of the related insurance risks.
|
•
|
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 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
|
|
2019
|
|
2018
|
|
2017
|
||||||||||||||||||
($ 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
|
$
|
(216
|
)
|
|
$
|
(4.69
|
)
|
|
$
|
186
|
|
|
$
|
3.99
|
|
|
$
|
(329
|
)
|
|
$
|
(7.25
|
)
|
Adjustments:
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Non-credit impairment fair value (gain) loss on credit derivatives
|
(1
|
)
|
|
(0.03
|
)
|
|
1
|
|
|
0.02
|
|
|
(11
|
)
|
|
(0.24
|
)
|
||||||
Insurance intangible amortization
|
295
|
|
|
6.43
|
|
|
107
|
|
|
2.30
|
|
|
151
|
|
|
3.33
|
|
||||||
Foreign exchange (gains) losses
|
(12
|
)
|
|
(0.26
|
)
|
|
7
|
|
|
0.15
|
|
|
(21
|
)
|
|
(0.47
|
)
|
||||||
Fair value (gain) loss on interest rate derivatives from Ambac CVA
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
45
|
|
|
0.99
|
|
||||||
Adjusted Earnings (Loss)
|
$
|
66
|
|
|
$
|
1.44
|
|
|
$
|
301
|
|
|
$
|
6.47
|
|
|
$
|
(165
|
)
|
|
$
|
(3.64
|
)
|
•
|
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’s emergence from bankruptcy and the implementation of Fresh Start reporting. This adjustment ensures that all financial guarantee contracts are accounted for within Adjusted Book Value consistent with the provisions of the Financial Services—Insurance Topic of the ASC.
|
•
|
Ambac CVA on interest rate derivative liabilities: Elimination of the gain relating to Ambac’s CVA on interest rate derivative contracts. Similar to credit derivatives, fair values include the market’s perception of Ambac’s credit risk and this adjustment only allows for such gain when realized.
|
•
|
Net unearned premiums and fees in excess of expected losses: Addition of the value of the unearned premium revenue ("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.
|
|
2019
|
|
2018
|
||||||||||||
($ in millions, except per share data) December 31,
|
$ Amount
|
|
Per Share
|
|
$ Amount
|
|
Per Share
|
||||||||
Total Ambac Financial Group, Inc. stockholders’ equity
|
$
|
1,477
|
|
|
$
|
32.41
|
|
|
$
|
1,592
|
|
|
$
|
35.12
|
|
Adjustments:
|
|
|
|
|
|
|
|
||||||||
Non-credit impairment fair value losses on credit derivatives
|
—
|
|
|
0.01
|
|
|
1
|
|
|
0.03
|
|
||||
Insurance intangible asset
|
(427
|
)
|
|
(9.37
|
)
|
|
(719
|
)
|
|
(15.87
|
)
|
||||
Net unearned premiums and fees in excess of expected losses
|
414
|
|
|
9.09
|
|
|
462
|
|
|
10.19
|
|
||||
Net unrealized investment (gains) losses in Accumulated Other Comprehensive Income (Loss)
|
(151
|
)
|
|
(3.31
|
)
|
|
(86
|
)
|
|
(1.89
|
)
|
||||
Adjusted Book Value
|
$
|
1,313
|
|
|
$
|
28.83
|
|
|
$
|
1,251
|
|
|
$
|
27.58
|
|
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
|
|
$
|
30
|
|
|
$
|
(380
|
)
|
200 Basis Point Rise
|
|
17
|
|
|
(393
|
)
|
||
100 Basis Point Rise
|
|
7
|
|
|
(403
|
)
|
||
Base Scenario
|
|
—
|
|
|
(410
|
)
|
||
100 Basis Point Decline(1)
|
|
(2
|
)
|
|
(412
|
)
|
||
200 Basis Point Decline(1)
|
|
15
|
|
|
(395
|
)
|
(1)
|
Incorporates an interest rate floor of 0%
|
($ in millions)
|
|
Estimated Change in Net Fair Value
|
|
Estimated Net Fair Value
|
||||
250 Basis Point Widening
|
|
$
|
(20
|
)
|
|
$
|
(35
|
)
|
50 Basis Point Widening
|
|
(4
|
)
|
|
(19
|
)
|
||
Base Scenario
|
|
—
|
|
|
(15
|
)
|
||
50 basis Point Narrowing
|
|
4
|
|
|
(11
|
)
|
||
250 basis Point Narrowing
|
|
13
|
|
|
(2
|
)
|
($ in millions)
|
|
Estimated Change in Net Fair Value
|
|
Estimated Net Fair Value
|
||||
250 Basis Point Widening
|
|
$
|
(155
|
)
|
|
$
|
2,189
|
|
50 Basis Point Widening
|
|
(31
|
)
|
|
2,313
|
|
||
Base Scenario
|
|
—
|
|
|
2,344
|
|
||
50 Basis Point Narrowing
|
|
30
|
|
|
2,374
|
|
||
250 Basis Point Narrowing
|
|
71
|
|
|
2,415
|
|
($ in millions)
|
|
Estimated change in fair value
|
||
Change in Foreign Exchange Rates Against U.S. Dollar
|
|
|
||
20% Decrease
|
|
$
|
(72
|
)
|
10% Decrease
|
|
(36
|
)
|
|
10% Increase
|
|
36
|
|
|
20% Increase
|
|
72
|
|
|
||||||
|
|
|
|
|
|
|
Consolidated Financial Statements
|
||||||
|
|
|
||||
|
|
|
||||
|
|
|
|
|
|
|
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. Leases
|
|
||
Note 8. Insurance Regulatory Restrictions
|
|
|
Note 17. Commitments and Contingencies
|
|
||
Note 9. Fair Value Measurements
|
|
|
Note 18. Quarterly Information (Unaudited)
|
|
•
|
Evaluating the loss and loss expense reserves and subrogation recoverable methodologies for compliance with U.S. generally accepted accounting principles;
|
•
|
Evaluating, in certain instances, the key inputs and assumptions used in the calculation of loss reserves by comparing to internal experience and related historical and industry trends; and
|
•
|
Developing, in certain instances, an independent expectation of the loss reserves and comparing it to the recorded estimate.
|
(Dollars in millions, except share data) December 31,
|
2019
|
|
2018
|
||||
Assets:
|
|
|
|
||||
Investments:
|
|
|
|
||||
Fixed income securities, at fair value (amortized cost of $2,450 and $3,020)
|
$
|
2,577
|
|
|
$
|
3,116
|
|
Short-term investments, at fair value (amortized cost of $653 and $430)
|
653
|
|
|
430
|
|
||
Short-term investments pledged as collateral, at fair value (amortized cost of $85 and $0)
|
85
|
|
|
—
|
|
||
Other investments (includes $432 and $351 at fair value)
|
478
|
|
|
391
|
|
||
Total investments
|
3,792
|
|
|
3,937
|
|
||
Cash and cash equivalents
|
24
|
|
|
63
|
|
||
Restricted cash
|
55
|
|
|
19
|
|
||
Premium receivables
|
416
|
|
|
495
|
|
||
Reinsurance recoverable on paid and unpaid losses
|
26
|
|
|
23
|
|
||
Deferred ceded premium
|
82
|
|
|
61
|
|
||
Subrogation recoverable
|
2,029
|
|
|
1,933
|
|
||
Derivative assets
|
75
|
|
|
59
|
|
||
Current taxes
|
11
|
|
|
47
|
|
||
Insurance intangible asset
|
427
|
|
|
719
|
|
||
Other assets
|
95
|
|
|
138
|
|
||
Variable interest entity assets:
|
|
|
|
||||
Fixed income securities, at fair value
|
3,121
|
|
|
2,737
|
|
||
Restricted cash
|
2
|
|
|
1
|
|
||
Loans, at fair value
|
3,108
|
|
|
4,288
|
|
||
Derivative assets
|
52
|
|
|
66
|
|
||
Other assets
|
3
|
|
|
1
|
|
||
Total assets
|
$
|
13,320
|
|
|
$
|
14,589
|
|
Liabilities and Stockholders’ Equity:
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Unearned premiums
|
$
|
518
|
|
|
$
|
630
|
|
Loss and loss expense reserves
|
1,548
|
|
|
1,826
|
|
||
Ceded premiums payable
|
29
|
|
|
33
|
|
||
Deferred taxes
|
32
|
|
|
40
|
|
||
Long-term debt
|
2,822
|
|
|
2,929
|
|
||
Accrued interest payable
|
441
|
|
|
376
|
|
||
Derivative liabilities
|
90
|
|
|
77
|
|
||
Other liabilities
|
93
|
|
|
64
|
|
||
Variable interest entity liabilities:
|
|
|
|
||||
Accrued interest payable
|
1
|
|
|
1
|
|
||
Long-term debt (includes $4,351 and $5,269 at fair value)
|
4,554
|
|
|
5,269
|
|
||
Derivative liabilities
|
1,657
|
|
|
1,712
|
|
||
Total liabilities
|
11,783
|
|
|
12,956
|
|
||
Commitments and contingencies (See Note 17)
|
|
|
|
||||
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: 45,571,743 and 45,365,170
|
—
|
|
|
—
|
|
||
Additional paid-in capital
|
232
|
|
|
219
|
|
||
Accumulated other comprehensive income (loss)
|
42
|
|
|
(49
|
)
|
||
Retained earnings
|
1,203
|
|
|
1,421
|
|
||
Treasury stock, shares at cost: 16,343 and 28,892
|
—
|
|
|
—
|
|
||
Total Ambac Financial Group, Inc. stockholders’ equity
|
1,477
|
|
|
1,592
|
|
||
Noncontrolling interest
|
60
|
|
|
41
|
|
||
Total stockholders’ equity
|
1,536
|
|
|
1,633
|
|
||
Total liabilities and stockholders’ equity
|
$
|
13,320
|
|
|
$
|
14,589
|
|
(Dollars in millions, except share data) Year Ended December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Net premiums earned
|
$
|
66
|
|
|
$
|
111
|
|
|
$
|
175
|
|
Net investment income:
|
|
|
|
|
|
||||||
Securities available-for-sale and short-term
|
196
|
|
|
271
|
|
|
338
|
|
|||
Other investments
|
32
|
|
|
2
|
|
|
23
|
|
|||
Net investment income
|
227
|
|
|
273
|
|
|
361
|
|
|||
Other-than-temporary impairment losses:
|
|
|
|
|
|
||||||
Total other-than-temporary impairment losses
|
—
|
|
|
(3
|
)
|
|
(55
|
)
|
|||
Portion of other-than-temporary impairment recognized in other comprehensive income (loss)
|
—
|
|
|
—
|
|
|
34
|
|
|||
Net other-than-temporary impairment losses recognized in earnings
|
—
|
|
|
(3
|
)
|
|
(20
|
)
|
|||
Net realized investment gains (losses)
|
81
|
|
|
112
|
|
|
5
|
|
|||
Net gains (losses) on derivative contracts
|
(50
|
)
|
|
7
|
|
|
76
|
|
|||
Net realized gains (losses) on extinguishment of debt
|
—
|
|
|
3
|
|
|
5
|
|
|||
Other income
|
134
|
|
|
5
|
|
|
—
|
|
|||
Income (loss) on variable interest entities
|
38
|
|
|
3
|
|
|
20
|
|
|||
Total revenues
|
496
|
|
|
511
|
|
|
622
|
|
|||
Expenses:
|
|
|
|
|
|
||||||
Losses and loss expenses (benefit)
|
13
|
|
|
(224
|
)
|
|
513
|
|
|||
Insurance intangible amortization
|
295
|
|
|
107
|
|
|
151
|
|
|||
Operating expenses
|
103
|
|
|
112
|
|
|
122
|
|
|||
Interest expense
|
269
|
|
|
242
|
|
|
120
|
|
|||
Total expenses
|
680
|
|
|
238
|
|
|
906
|
|
|||
Pre-tax income (loss)
|
(183
|
)
|
|
273
|
|
|
(284
|
)
|
|||
Provision for income taxes
|
32
|
|
|
5
|
|
|
44
|
|
|||
Net income (loss)
|
(216
|
)
|
|
267
|
|
|
(329
|
)
|
|||
Less: loss on exchange of auction market preferred shares
|
—
|
|
|
82
|
|
|
—
|
|
|||
Net income (loss) attributable to common stockholders
|
$
|
(216
|
)
|
|
$
|
186
|
|
|
$
|
(329
|
)
|
Other comprehensive income (loss), after tax:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(216
|
)
|
|
$
|
267
|
|
|
$
|
(329
|
)
|
Unrealized gains (losses) on securities, net of income tax provision (benefit) of $(8), $2 and $0
|
65
|
|
|
55
|
|
|
(82
|
)
|
|||
Gains (losses) on foreign currency translation, net of income tax provision (benefit) of $0, $0 and $0
|
26
|
|
|
(48
|
)
|
|
74
|
|
|||
Credit risk changes of fair value option liabilities, net of income tax provision (benefit) of $0, $0 and $0
|
—
|
|
|
1
|
|
|
—
|
|
|||
Changes to postretirement benefit, net of income tax provision (benefit) of $0, $0 and $0
|
(1
|
)
|
|
(2
|
)
|
|
1
|
|
|||
Total other comprehensive income (loss), net of income tax
|
91
|
|
|
6
|
|
|
(7
|
)
|
|||
Total comprehensive income (loss)
|
(125
|
)
|
|
274
|
|
|
(335
|
)
|
|||
Less: loss on exchange of auction market preferred shares
|
—
|
|
|
82
|
|
|
—
|
|
|||
Total comprehensive income (loss) attributable to common stockholders
|
$
|
(125
|
)
|
|
$
|
192
|
|
|
$
|
(335
|
)
|
Net income (loss) per share attributable to common stockholders:
|
|
|
|
|
|
||||||
Basic
|
$
|
(4.69
|
)
|
|
$
|
4.07
|
|
|
$
|
(7.25
|
)
|
Diluted
|
$
|
(4.69
|
)
|
|
$
|
3.99
|
|
|
$
|
(7.25
|
)
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
||||||
Basic
|
45,954,908
|
|
|
45,665,883
|
|
|
45,367,932
|
|
|||
Diluted
|
45,954,908
|
|
|
46,559,835
|
|
|
45,367,932
|
|
|
|
|
Ambac Financial Group, Inc.
|
|
|
||||||||||||||||||||||||||
(Dollars in millions)
|
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, 2019
|
$
|
1,633
|
|
|
$
|
1,421
|
|
|
$
|
(49
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
41
|
|
Total comprehensive income (loss)
|
(125
|
)
|
|
(216
|
)
|
|
91
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Stock-based compensation
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(3
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Re-issuance of Ambac Assurance auction market preferred shares
|
19
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
19
|
|
||||||||
Balance at December 31, 2019
|
$
|
1,536
|
|
|
$
|
1,203
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
232
|
|
|
$
|
—
|
|
|
$
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Balance at January 1, 2018
|
$
|
1,645
|
|
|
$
|
1,234
|
|
|
$
|
(52
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
264
|
|
Total comprehensive income (loss)
|
274
|
|
|
267
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjustment to initially apply ASU 2016-01
|
—
|
|
|
3
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Stock-based compensation
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Exchange of auction market preferred shares
|
(297
|
)
|
|
(82
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
8
|
|
|
—
|
|
|
(223
|
)
|
||||||||
Balance at December 31, 2018
|
$
|
1,633
|
|
|
$
|
1,421
|
|
|
$
|
(49
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
219
|
|
|
$
|
—
|
|
|
$
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Balance at January 1, 2017
|
$
|
1,978
|
|
|
$
|
1,558
|
|
|
$
|
(39
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
195
|
|
|
$
|
—
|
|
|
$
|
264
|
|
Total comprehensive income (loss)
|
(335
|
)
|
|
(329
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Adjustment to initially apply ASU 2018-02
|
—
|
|
|
7
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Stock-based compensation
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|
—
|
|
||||||||
Cost of shares (acquired) issued under equity plan
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Balance at December 31, 2017
|
$
|
1,645
|
|
|
$
|
1,234
|
|
|
$
|
(52
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
—
|
|
|
$
|
264
|
|
(Dollars in millions) Year Ended December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Net income (loss) attributable to common stockholders
|
$
|
(216
|
)
|
|
$
|
186
|
|
|
$
|
(329
|
)
|
Exchange for auction market preferred shares
|
—
|
|
|
82
|
|
|
—
|
|
|||
Net income (loss)
|
(216
|
)
|
|
267
|
|
|
(329
|
)
|
|||
Adjustments to reconcile net income to net cash used in operating activities:
|
|
|
|
|
|
||||||
Depreciation and amortization
|
—
|
|
|
1
|
|
|
1
|
|
|||
Amortization of bond premium and discount
|
(63
|
)
|
|
(137
|
)
|
|
(183
|
)
|
|||
Share-based compensation
|
12
|
|
|
12
|
|
|
4
|
|
|||
Deferred income taxes
|
1
|
|
|
7
|
|
|
32
|
|
|||
Current income taxes
|
35
|
|
|
(35
|
)
|
|
(26
|
)
|
|||
Unearned premiums, net
|
(132
|
)
|
|
(163
|
)
|
|
(168
|
)
|
|||
Losses and loss expenses, net
|
(364
|
)
|
|
(1,633
|
)
|
|
400
|
|
|||
Ceded premiums payable
|
(4
|
)
|
|
(5
|
)
|
|
(5
|
)
|
|||
Premium receivables
|
77
|
|
|
91
|
|
|
77
|
|
|||
Accrued interest payable
|
87
|
|
|
9
|
|
|
50
|
|
|||
Amortization of insurance intangible assets
|
295
|
|
|
107
|
|
|
151
|
|
|||
Net mark-to-market (gains) losses
|
(1
|
)
|
|
1
|
|
|
(15
|
)
|
|||
Net realized investment gains
|
(81
|
)
|
|
(112
|
)
|
|
(5
|
)
|
|||
Other-than-temporary impairment charges
|
—
|
|
|
3
|
|
|
20
|
|
|||
(Gain) loss on extinguishment of debt
|
—
|
|
|
(3
|
)
|
|
(5
|
)
|
|||
Variable interest entity activities
|
(38
|
)
|
|
(3
|
)
|
|
(20
|
)
|
|||
Derivative assets and liabilities
|
(1
|
)
|
|
(17
|
)
|
|
(223
|
)
|
|||
Other, net
|
80
|
|
|
67
|
|
|
22
|
|
|||
Net cash used in operating activities
|
(311
|
)
|
|
(1,543
|
)
|
|
(221
|
)
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Proceeds from sales of bonds
|
1,212
|
|
|
1,248
|
|
|
2,139
|
|
|||
Proceeds from matured bonds
|
379
|
|
|
432
|
|
|
814
|
|
|||
Purchases of bonds
|
(959
|
)
|
|
(528
|
)
|
|
(2,054
|
)
|
|||
Proceeds from sales of other invested assets
|
81
|
|
|
159
|
|
|
350
|
|
|||
Purchases of other invested assets
|
(137
|
)
|
|
(140
|
)
|
|
(299
|
)
|
|||
Change in short-term investments
|
(218
|
)
|
|
127
|
|
|
(127
|
)
|
|||
Change in cash collateral receivable
|
100
|
|
|
(58
|
)
|
|
123
|
|
|||
Proceeds from paydowns of consolidated VIE assets
|
543
|
|
|
349
|
|
|
235
|
|
|||
Other, net
|
(2
|
)
|
|
—
|
|
|
(17
|
)
|
|||
Net cash provided by investing activities
|
1,000
|
|
|
1,588
|
|
|
1,163
|
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Net proceeds from issuance of Tier 2 notes
|
—
|
|
|
240
|
|
|
—
|
|
|||
Proceeds from issuance of Ambac UK debt
|
12
|
|
|
—
|
|
|
—
|
|
|||
Proceeds from issuance of surplus notes
|
—
|
|
|
24
|
|
|
—
|
|
|||
Paydowns of Ambac note
|
(178
|
)
|
|
(214
|
)
|
|
—
|
|
|||
Paydowns of a secured borrowing
|
—
|
|
|
(74
|
)
|
|
(29
|
)
|
|||
Payments for investment agreement draws
|
—
|
|
|
—
|
|
|
(82
|
)
|
|||
Payments for extinguishment of surplus notes
|
—
|
|
|
(191
|
)
|
|
(69
|
)
|
|||
Payments for debt issuance costs
|
—
|
|
|
(9
|
)
|
|
—
|
|
|||
Issuance of auction market preferred shares of Ambac Assurance
|
19
|
|
|
—
|
|
|
—
|
|
|||
Payments for auction market preferred shares
|
—
|
|
|
(11
|
)
|
|
—
|
|
|||
Tax payments related to shares withheld for share-based compensation plans
|
(3
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|||
Payments of consolidated VIE liabilities
|
(542
|
)
|
|
(349
|
)
|
|
(230
|
)
|
|||
Net cash used in financing activities
|
(691
|
)
|
|
(585
|
)
|
|
(412
|
)
|
|||
Effect of foreign exchange on cash and cash equivalents
|
—
|
|
|
—
|
|
|
(1
|
)
|
|||
Net cash flow
|
(2
|
)
|
|
(541
|
)
|
|
529
|
|
|||
Cash, cash equivalents, and restricted cash at beginning of period
|
83
|
|
|
625
|
|
|
96
|
|
|||
Cash, cash equivalents, and restricted cash at end of period
|
$
|
81
|
|
|
$
|
83
|
|
|
$
|
625
|
|
•
|
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 capital and liability structures;
|
•
|
Loss recovery through active litigation management and exercise of contractual and legal rights;
|
•
|
Ongoing review and adjustments focused on improving 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 $3,857;
|
•
|
Cancellation of $552 in principal amount outstanding, plus accrued and unpaid interest of $257 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)
|
Repurchased 84.4% or 22,296 AMPS with an aggregate liquidation preference of $557, including $35 in aggregate liquidation preference in the AFG Purchase;
|
2)
|
Captured a nominal discount of approximately $227 (a discount of approximately $253 on a fair market value basis) on $557 of the total outstanding liquidation preference of AMPS; and
|
3)
|
Issued, in aggregate, $213 in current principal amount of General Account Surplus Notes with accrued interest thereon on Settlement Date of $98, issued 824,307 warrants and paid $11 in cash.
|
•
|
Loans not held by consolidated VIEs are reported at their outstanding principal balance less unamortized discount and are reported within Other assets on the Consolidated Balance Sheet. 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 (Loss). Such loans are reported as Loans, at fair value within the Variable interest entity assets section of the Consolidated Balance Sheet.
|
•
|
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 these interest rate derivatives are recorded, along with changes in fair value of Ambac's remaining credit derivatives, within Net gains (losses) on derivative contracts on the Consolidated Statements of Total Comprehensive Income (Loss).
|
•
|
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 (Loss).
|
•
|
Net claim cash outflow policies represent contracts where the PV of expected cash outflows are greater than the PV of expected recovery cash inflows. For such policies, a “Loss and loss expense reserves” liability is recorded for the excess of the PV of expected net claim cash outflows over the unearned premium revenue.
|
•
|
Net recovery cash inflow policies represent contracts where the PV of expected recovery cash inflows are greater than the PV of expected claim cash outflows. For such policies, a “Subrogation recoverable” asset is recorded.
|
•
|
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 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.
|
Year Ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
|
||||||
Income taxes
|
|
$
|
21
|
|
|
$
|
35
|
|
|
$
|
40
|
|
Interest on long-term debt and investment agreements
|
|
143
|
|
|
232
|
|
|
39
|
|
|||
Non-cash financing activities:
|
|
|
|
|
|
|
||||||
Increase in long-term debt in exchange for AMPS
|
|
—
|
|
|
187
|
|
|
—
|
|
|||
Decrease in long-term debt as a result of an exchange for investment securities
|
|
—
|
|
|
—
|
|
|
55
|
|
|||
Rehabilitation exit transaction discharge of all Deferred Amounts and cancellation of certain General Account Surplus Notes
|
|
—
|
|
|
1,919
|
|
|
—
|
|
|||
|
|
|
|
|
|
|
||||||
December 31,
|
|
2019
|
|
2018
|
|
2017
|
||||||
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
|
|
$
|
24
|
|
|
$
|
63
|
|
|
$
|
624
|
|
Restricted cash
|
|
55
|
|
|
19
|
|
|
—
|
|
|||
Variable Interest Entity Restricted cash
|
|
2
|
|
|
1
|
|
|
1
|
|
|||
Total cash, cash equivalents, and restricted cash shown on the Consolidated Statements of Cash Flows
|
|
81
|
|
|
83
|
|
|
625
|
|
•
|
Ambac 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 consolidates certain FG VIEs in cases where we also have the power to direct the activities that most significantly impact the VIE’s economic performance due to one or more of the following: (i) the transaction experiencing deterioration and breaching performance triggers, giving Ambac the ability to exercise certain control rights, (ii) Ambac being involved in the design of the VIE and receiving control rights from its inception, or (iii) 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.
|
•
|
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.
|
•
|
The election to use the fair value option is made on an instrument by instrument basis. Ambac has elected the fair value option for consolidated FG VIE financial assets and financial liabilities, except in cases where Ambac was involved in the design of the VIE and was granted control rights at its inception.
|
◦
|
When the fair value option is elected, changes in the fair value of the FG VIE's financial assets and liabilities are reported within Income (loss) on variable interest entities in the Consolidated Statements of Total Comprehensive Income (Loss), except for the portion of the total change in fair value of financial liabilities caused by changes in the instrument-specific credit risk which is presented separately in Other comprehensive income (loss).
|
◦
|
In cases where the fair value option has not been elected, the FG VIE's invested assets are fixed income securities and are considered available-for-sale as defined by the Investments - Debt Securities Topic of the ASC. These assets are reported in the financial statements at fair value with unrealized gains and losses reflected in Accumulated
|
•
|
Upon initial consolidation of a FG VIE, Ambac recognizes 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, Ambac recognizes 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 Balance Sheets. Such insurance assets and liabilities may include premium receivables, reinsurance recoverable, deferred ceded premium, subrogation recoverable, unearned premiums, loss and loss expense reserves, ceded premiums payable and insurance intangible assets. For investment securities owned by Ambac that are debt instruments issued by the VIE, the investment securities balance is eliminated upon consolidation.
|
December 31,
|
|
2019
|
|
2018
|
||||||||||||||||||||
ASSETS:
|
|
Ambac UK
|
|
Ambac Assurance
|
|
Total VIEs
|
|
Ambac UK
|
|
Ambac Assurance
|
|
Total VIEs
|
||||||||||||
Fixed income securities, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Corporate obligations, fair value option
|
|
$
|
2,957
|
|
|
$
|
—
|
|
|
$
|
2,957
|
|
|
$
|
2,737
|
|
|
$
|
—
|
|
|
$
|
2,737
|
|
Municipal obligations, available-for-sale (1)
|
|
—
|
|
|
164
|
|
|
164
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total FG VIE fixed income securities, at fair value
|
|
2,957
|
|
|
164
|
|
|
3,121
|
|
|
2,737
|
|
|
—
|
|
|
2,737
|
|
||||||
Restricted cash
|
|
1
|
|
|
1
|
|
|
2
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||||
Loans, at fair value (2)
|
|
3,108
|
|
|
—
|
|
|
3,108
|
|
|
4,288
|
|
|
—
|
|
|
4,288
|
|
||||||
Derivative assets
|
|
52
|
|
|
—
|
|
|
52
|
|
|
66
|
|
|
—
|
|
|
66
|
|
||||||
Other assets
|
|
1
|
|
|
2
|
|
|
3
|
|
|
1
|
|
|
—
|
|
|
1
|
|
||||||
Total FG VIE assets
|
|
$
|
6,119
|
|
|
$
|
167
|
|
|
$
|
6,286
|
|
|
$
|
7,093
|
|
|
$
|
—
|
|
|
$
|
7,093
|
|
LIABILITIES:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Accrued interest payable
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Long-term debt, at fair value (3)
|
|
4,351
|
|
|
—
|
|
|
4,351
|
|
|
5,269
|
|
|
—
|
|
|
5,269
|
|
||||||
Long-term debt, at par less unamortized discount
|
|
—
|
|
|
203
|
|
|
203
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Total long-term debt
|
|
4,351
|
|
|
203
|
|
|
4,554
|
|
|
5,269
|
|
|
—
|
|
|
5,269
|
|
||||||
Derivative liabilities
|
|
1,657
|
|
|
—
|
|
|
1,657
|
|
|
1,712
|
|
|
—
|
|
|
1,712
|
|
||||||
Total FG VIE liabilities
|
|
$
|
6,009
|
|
|
$
|
203
|
|
|
$
|
6,212
|
|
|
$
|
6,981
|
|
|
$
|
—
|
|
|
$
|
6,981
|
|
Number of FG VIEs consolidated
|
|
6
|
|
|
1
|
|
|
7
|
|
|
7
|
|
|
—
|
|
|
7
|
|
(1)
|
Available-for-sale securities consist of municipal obligations with an amortized cost basis of $139 and aggregate gross unrealized gains and (losses) of $25 at December 31, 2019. All such securities had contractual maturities due after ten years as of December 31, 2019.
|
(2)
|
The unpaid principal balances of loan assets carried at fair value were $2,618 as of December 31, 2019 and $3,418 as of December 31, 2018.
|
(3)
|
The unpaid principal balances of long-term debt carried at fair value were $3,800 as of December 31, 2019 and $4,553 as of December 31, 2018.
|
Year ended December 31,
|
|
2019
|
|
2018
|
|
2017
|
||||||
Net change in fair value of VIE assets and liabilities reported under the fair value option
|
|
$
|
13
|
|
|
$
|
3
|
|
|
$
|
20
|
|
Less: Credit risk changes of fair value option long-term debt reported through other comprehensive income (loss)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|||
Net change in fair value of VIE assets and liabilities reported in earnings
|
|
14
|
|
|
2
|
|
|
20
|
|
|||
Investment income on available-for-sale securities
|
|
10
|
|
|
—
|
|
|
—
|
|
|||
Net realized investment gains (losses) on available-for-sale securities
|
|
13
|
|
|
—
|
|
|
—
|
|
|||
Interest expense on long-term debt carried at par less unamortized cost
|
|
(11
|
)
|
|
—
|
|
|
—
|
|
|||
Other expenses
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|||
Gain (loss) from consolidating FG VIEs
|
|
15
|
|
|
—
|
|
|
—
|
|
|||
Gain (loss) from de-consolidating FG VIEs
|
|
(2
|
)
|
|
2
|
|
|
—
|
|
|||
Income (loss) on variable interest entities
|
|
$
|
38
|
|
|
$
|
3
|
|
|
$
|
20
|
|
|
Carrying Value of Assets and Liabilities
|
||||||||||||||
|
Maximum
Exposure To Loss (1) |
|
Insurance
Assets (2) |
|
Insurance
Liabilities (3) |
|
Net Derivative
Assets (Liabilities) (4) |
||||||||
December 31, 2019:
|
|
|
|
|
|
|
|
||||||||
Global structured finance:
|
|
|
|
|
|
|
|
||||||||
Mortgage-backed—residential
|
$
|
5,373
|
|
|
$
|
1,913
|
|
|
$
|
523
|
|
|
$
|
—
|
|
Other consumer asset-backed
|
1,373
|
|
|
31
|
|
|
216
|
|
|
—
|
|
||||
Other commercial asset-backed
|
314
|
|
|
9
|
|
|
6
|
|
|
—
|
|
||||
Other
|
1,107
|
|
|
7
|
|
|
18
|
|
|
8
|
|
||||
Total global structured finance
|
8,165
|
|
|
1,961
|
|
|
762
|
|
|
8
|
|
||||
Global public finance
|
23,341
|
|
|
287
|
|
|
321
|
|
|
—
|
|
||||
Total
|
$
|
31,506
|
|
|
$
|
2,247
|
|
|
$
|
1,083
|
|
|
$
|
7
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
||||||||
Global structured finance:
|
|
|
|
|
|
|
|
||||||||
Collateralized debt obligations
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Mortgage-backed—residential
|
6,713
|
|
|
1,859
|
|
|
547
|
|
|
—
|
|
||||
Other consumer asset-backed
|
1,701
|
|
|
15
|
|
|
238
|
|
|
—
|
|
||||
Other commercial asset-backed
|
873
|
|
|
21
|
|
|
12
|
|
|
—
|
|
||||
Other
|
2,123
|
|
|
53
|
|
|
301
|
|
|
7
|
|
||||
Total global structured finance
|
11,420
|
|
|
1,949
|
|
|
1,098
|
|
|
7
|
|
||||
Global public finance
|
24,146
|
|
|
309
|
|
|
335
|
|
|
(1
|
)
|
||||
Total
|
$
|
35,566
|
|
|
$
|
2,258
|
|
|
$
|
1,434
|
|
|
$
|
6
|
|
(1)
|
Maximum exposure to loss represents the maximum future payments of principal and interest on insured obligations and derivative contracts. 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 included in “Premium receivables” and “Subrogation recoverable” for financial guarantee insurance contracts on Ambac’s Consolidated Balance Sheets.
|
(3)
|
Insurance liabilities represent the amount included in “Loss and loss expense reserves” and “Unearned premiums” for financial guarantee insurance 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.
|
•
|
Total principal amount of the entity's debt outstanding was $403 and $393 at December 31, 2019 and 2018, respectively. The entity's assets are utility obligations with a weighted average rating of BBB+ at December 31, 2019, and weighted average life of 1.1 years. Purchases by this entity of financial
|
•
|
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, 2019:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning Balance
|
|
$
|
86
|
|
|
$
|
9
|
|
|
$
|
(142
|
)
|
|
$
|
(2
|
)
|
|
$
|
(49
|
)
|
Other comprehensive income (loss)before reclassifications
|
|
142
|
|
|
1
|
|
|
26
|
|
|
—
|
|
|
168
|
|
|||||
Amounts reclassified from accumulated other comprehensive income (loss)
|
|
(76
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(78
|
)
|
|||||
Net current period other comprehensive income (loss)
|
|
65
|
|
|
(1
|
)
|
|
26
|
|
|
—
|
|
|
91
|
|
|||||
Balance at December 31, 2019
|
|
$
|
151
|
|
|
$
|
8
|
|
|
$
|
(116
|
)
|
|
$
|
(2
|
)
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Year ended December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Beginning Balance
|
|
$
|
31
|
|
|
$
|
11
|
|
|
$
|
(94
|
)
|
|
$
|
—
|
|
|
$
|
(52
|
)
|
Adjustments to opening balance, net of taxes (3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(3
|
)
|
|
(3
|
)
|
|||||
Adjusted balance, beginning of period
|
|
31
|
|
|
11
|
|
|
(94
|
)
|
|
(3
|
)
|
|
(55
|
)
|
|||||
Other comprehensive income before reclassifications
|
|
136
|
|
|
(1
|
)
|
|
(48
|
)
|
|
—
|
|
|
87
|
|
|||||
Amounts reclassified from accumulated other comprehensive income
|
|
(81
|
)
|
|
(1
|
)
|
|
—
|
|
|
1
|
|
|
(81
|
)
|
|||||
Net current period other comprehensive income (loss)
|
|
55
|
|
|
(2
|
)
|
|
(48
|
)
|
|
1
|
|
|
6
|
|
|||||
Balance at December 31, 2018
|
|
$
|
86
|
|
|
$
|
9
|
|
|
$
|
(142
|
)
|
|
$
|
(2
|
)
|
|
$
|
(49
|
)
|
(1)
|
All amounts are net of tax and noncontrolling interest. Amounts in parentheses indicate reductions to Accumulated Other Comprehensive Income.
|
(2)
|
Represents the changes in fair value attributable to instrument-specific credit risk of liabilities for which the fair value option is elected.
|
(3)
|
Beginning in 2018, credit risk changes of fair value option liabilities are reflected as a component of Accumulated Other Comprehensive Income pursuant to the adoption of ASU 2016-01. 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 |
|
Affected Line Item in the
Consolidated Statement of
Total Comprehensive Income
|
||||||
Year Ended December 31,
|
|
||||||||
2019
|
|
2018
|
|
||||||
Unrealized Gains (Losses) on Available-for-Sale Securities
|
|
|
|
|
|
||||
|
$
|
(81
|
)
|
|
$
|
(82
|
)
|
|
Net realized investment gains (loses)
|
|
4
|
|
|
1
|
|
|
Provision for income taxes
|
||
|
$
|
(76
|
)
|
|
$
|
(81
|
)
|
|
Net of tax and noncontrolling interest
|
Amortization of Postretirement Benefit
|
|
|
|
|
|
||||
Prior service cost
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
Other income
|
Actuarial gains (losses)
|
—
|
|
|
—
|
|
|
Other income
|
||
|
(1
|
)
|
|
(1
|
)
|
|
Total before tax
|
||
|
—
|
|
|
—
|
|
|
Provision for income taxes
|
||
|
$
|
(1
|
)
|
|
$
|
(1
|
)
|
|
Net of tax and noncontrolling interest
|
Credit Risk Changes of Fair Value Option Liabilities
|
|
|
|
|
|
||||
|
$
|
—
|
|
|
$
|
1
|
|
|
Credit risk changes of fair value option liabilities
|
|
—
|
|
|
—
|
|
|
Provision for income taxes
|
||
|
—
|
|
|
1
|
|
|
Net of tax and noncontrolling interest
|
||
Total reclassifications for the period
|
$
|
(78
|
)
|
|
$
|
(81
|
)
|
|
Net of tax and noncontrolling interest
|
Year Ended
December 31,
|
2019
|
|
2018
|
|
2017
|
|||
Basic weighted average shares outstanding
|
45,954,908
|
|
|
45,665,883
|
|
|
45,367,932
|
|
Effect of potential dilutive shares(1):
|
|
|
|
|
|
|||
Warrants
|
—
|
|
|
441,104
|
|
|
—
|
|
Stock options
|
—
|
|
|
—
|
|
|
—
|
|
Restricted stock units
|
—
|
|
|
77,572
|
|
|
—
|
|
Performance stock units (2)
|
—
|
|
|
375,276
|
|
|
—
|
|
Diluted weighted average shares outstanding
|
45,954,908
|
|
|
46,559,835
|
|
|
45,367,932
|
|
Anti-dilutive shares excluded from the above reconciliation
|
|
|
|
|
|
|||
Stock options
|
16,667
|
|
|
16,667
|
|
|
126,667
|
|
Warrants
|
4,877,783
|
|
|
—
|
|
|
4,053,670
|
|
Restricted stock units
|
249,263
|
|
|
—
|
|
|
68,654
|
|
Performance stock units (2)
|
872,258
|
|
|
—
|
|
|
322,943
|
|
(1)
|
For the years ended December 31, 2019 and 2017, Ambac had a net loss and accordingly excluded all potentially dilutive securities from the determination of diluted loss per share as their impact was anti-dilutive.
|
(2)
|
Performance stock units are reflected based on the performance metrics through the balance sheet date. 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,
|
2019
|
|
2018
|
||||
Public Finance:
|
|
|
|
||||
Housing revenue (1)
|
$
|
5,991
|
|
|
$
|
6,159
|
|
Lease and tax-backed revenue
|
5,102
|
|
|
7,565
|
|
||
General obligation
|
3,011
|
|
|
4,214
|
|
||
Higher education
|
885
|
|
|
1,168
|
|
||
Transportation revenue
|
855
|
|
|
1,754
|
|
||
Utility revenue
|
768
|
|
|
1,178
|
|
||
Other
|
1,041
|
|
|
1,404
|
|
||
Total Public Finance
|
17,653
|
|
|
23,442
|
|
||
Structured Finance:
|
|
|
|
||||
Mortgage-backed and home equity
|
4,423
|
|
|
5,510
|
|
||
Investor-owned utilities
|
1,675
|
|
|
1,754
|
|
||
Student loan
|
769
|
|
|
934
|
|
||
Structured Insurance
|
395
|
|
|
1,365
|
|
||
Asset-backed and other
|
246
|
|
|
384
|
|
||
Total Structured Finance
|
7,508
|
|
|
9,947
|
|
||
International Finance:
|
|
|
|
||||
Sovereign/sub-sovereign
|
5,264
|
|
|
5,250
|
|
||
Investor-owned and public utilities
|
4,436
|
|
|
4,499
|
|
||
Asset-backed and other
|
1,625
|
|
|
2,176
|
|
||
Transportation
|
1,532
|
|
|
1,613
|
|
||
Total International Finance
|
12,857
|
|
|
13,538
|
|
||
Total
|
$
|
38,018
|
|
|
$
|
46,927
|
|
(1)
|
Includes $5,654 and $5,759 of Military Housing net par at December 31, 2019 and 2018, respectively.
|
Net Par Outstanding December 31,
|
2019
|
|
2018
|
||||
United Kingdom
|
$
|
10,593
|
|
|
$
|
10,965
|
|
Italy
|
767
|
|
|
811
|
|
||
Austria
|
674
|
|
|
712
|
|
||
Australia
|
382
|
|
|
384
|
|
||
France
|
303
|
|
|
312
|
|
||
Other international (1)
|
138
|
|
|
354
|
|
||
Total International Finance
|
$
|
12,857
|
|
|
$
|
13,538
|
|
(1)
|
Other international may include components of U.S. exposure.
|
Year Ended
December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Beginning premium receivable
|
$
|
495
|
|
|
$
|
586
|
|
|
$
|
661
|
|
Premium receipts
|
(48
|
)
|
|
(56
|
)
|
|
(82
|
)
|
|||
Adjustments for changes in expected and contractual cash flows (1)
|
(38
|
)
|
|
(42
|
)
|
|
(30
|
)
|
|||
Accretion of premium receivable discount
|
11
|
|
|
15
|
|
|
16
|
|
|||
Deconsolidation of certain VIEs
|
3
|
|
|
—
|
|
|
—
|
|
|||
Changes to uncollectable premiums
|
(2
|
)
|
|
2
|
|
|
—
|
|
|||
Other adjustments (including foreign exchange)
|
(6
|
)
|
|
(10
|
)
|
|
21
|
|
|||
Ending premium receivable (2)
|
$
|
416
|
|
|
$
|
495
|
|
|
$
|
586
|
|
(1)
|
Adjustments for changes in expected and contractual cash flows primarily due to reductions in insured exposure as a result of early policy terminations and unscheduled principal paydowns.
|
(2)
|
Premium receivable includes premiums to be received in foreign denominated currencies most notably in British Pounds and Euros. At December 31, 2019, 2018 and 2017 premium receivables include British Pounds of $129 (£97), $131 (£103) and $152 (£112), respectively, and Euros of $26 (€23), $31 (€27) and $36 (€30), respectively.
|
Year Ended
December 31,
|
Direct
|
|
Assumed
|
|
Ceded (1)
|
|
Net
Premiums
|
||||||||
2019:
|
|
|
|
|
|
|
|
||||||||
Written
|
$
|
(28
|
)
|
|
$
|
—
|
|
|
$
|
31
|
|
|
$
|
(60
|
)
|
Earned
|
75
|
|
|
—
|
|
|
10
|
|
|
66
|
|
||||
2018:
|
|
|
|
|
|
|
|
||||||||
Written
|
$
|
(24
|
)
|
|
$
|
—
|
|
|
$
|
17
|
|
|
$
|
(41
|
)
|
Earned
|
119
|
|
|
—
|
|
|
8
|
|
|
111
|
|
||||
2017:
|
|
|
|
|
|
|
|
||||||||
Written
|
$
|
(14
|
)
|
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(12
|
)
|
Earned
|
190
|
|
|
—
|
|
|
15
|
|
|
175
|
|
(1)
|
Includes ceded premium activity related to the execution of reinsurance transactions in the years ended December 31, 2019 and 2018.
|
Year Ended
December 31,
|
|
2019
|
|
2018
|
|
2017
|
||||||
United States
|
|
$
|
55
|
|
|
$
|
88
|
|
|
$
|
134
|
|
United Kingdom
|
|
17
|
|
|
19
|
|
|
33
|
|
|||
Other international
|
|
(6
|
)
|
|
5
|
|
|
8
|
|
|||
Total
|
|
$
|
66
|
|
|
$
|
111
|
|
|
$
|
175
|
|
|
Future Premiums
to be
Collected (1)
|
|
Future
Premiums
to be
Earned Net of
Reinsurance (2) |
||||
Three months ended:
|
|
|
|
||||
March 31, 2020
|
$
|
14
|
|
|
$
|
10
|
|
June 30, 2020
|
11
|
|
|
10
|
|
||
September 30, 2020
|
10
|
|
|
10
|
|
||
December 31, 2020
|
9
|
|
|
10
|
|
||
Twelve months ended:
|
|
|
|
||||
December 31, 2021
|
37
|
|
|
36
|
|
||
December 31, 2022
|
36
|
|
|
34
|
|
||
December 31, 2023
|
34
|
|
|
32
|
|
||
December 31, 2024
|
33
|
|
|
30
|
|
||
Five years ended:
|
|
|
|
||||
December 31, 2029
|
143
|
|
|
124
|
|
||
December 31, 2034
|
102
|
|
|
82
|
|
||
December 31, 2039
|
47
|
|
|
38
|
|
||
December 31, 2044
|
22
|
|
|
14
|
|
||
December 31, 2049
|
9
|
|
|
5
|
|
||
December 31, 2054
|
1
|
|
|
1
|
|
||
Total
|
$
|
508
|
|
|
$
|
436
|
|
(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.
|
|
Present Value of Expected
Net Cash Flows |
|
Unearned
Premium Revenue |
|
Gross Loss and
Loss Expense Reserves |
||||||||||
Balance Sheet Line Item
|
Claims and
Loss Expenses |
|
Recoveries
|
|
|
||||||||||
December 31, 2019:
|
|
|
|
|
|
|
|
||||||||
Loss and loss expense reserves
|
$
|
1,835
|
|
|
$
|
(233
|
)
|
|
$
|
(54
|
)
|
|
$
|
1,548
|
|
Subrogation recoverable
|
131
|
|
|
(2,160
|
)
|
|
—
|
|
|
(2,029
|
)
|
||||
Totals
|
$
|
1,966
|
|
|
$
|
(2,394
|
)
|
|
$
|
(54
|
)
|
|
$
|
(482
|
)
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
||||||||
Loss and loss expense reserves
|
$
|
2,246
|
|
|
$
|
(314
|
)
|
|
$
|
(107
|
)
|
|
$
|
1,826
|
|
Subrogation recoverable
|
176
|
|
|
(2,109
|
)
|
|
—
|
|
|
(1,933
|
)
|
||||
Totals
|
$
|
2,422
|
|
|
$
|
(2,422
|
)
|
|
$
|
(107
|
)
|
|
$
|
(107
|
)
|
Year Ended
December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Beginning gross loss and loss expense reserves
|
$
|
(107
|
)
|
|
$
|
4,114
|
|
|
$
|
3,696
|
|
Reinsurance recoverable
|
23
|
|
|
41
|
|
|
31
|
|
|||
Beginning balance of net loss and loss expense reserves
|
(130
|
)
|
|
4,073
|
|
|
3,665
|
|
|||
Losses and loss expenses (benefit) incurred:
|
|
|
|
|
|
||||||
Current year
|
1
|
|
|
5
|
|
|
6
|
|
|||
Prior years (1)
|
12
|
|
|
(228
|
)
|
|
507
|
|
|||
Total (2)(3)
|
13
|
|
|
(224
|
)
|
|
513
|
|
|||
Loss and loss expenses (recovered) paid:
|
|
|
|
|
|
||||||
Current year
|
—
|
|
|
—
|
|
|
1
|
|
|||
Prior years (1)
|
318
|
|
|
3,963
|
|
|
133
|
|
|||
Total
|
318
|
|
|
3,964
|
|
|
134
|
|
|||
Foreign exchange effect
|
(1
|
)
|
|
(15
|
)
|
|
29
|
|
|||
Ending net loss and loss expense reserves
|
(436
|
)
|
|
(130
|
)
|
|
4,073
|
|
|||
Impact of VIE consolidation
|
(72
|
)
|
|
—
|
|
|
—
|
|
|||
Reinsurance recoverable (4)
|
26
|
|
|
23
|
|
|
41
|
|
|||
Ending gross loss and loss expense reserves
|
(482
|
)
|
|
(107
|
)
|
|
4,114
|
|
(1)
|
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 and $857, 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 loss and loss expense benefit on these settled Deferred Amounts.
|
(2)
|
Total losses and loss expenses (benefit) includes $(7), $(2) and $20 for the years ended December 31, 2019, 2018 and 2017, respectively, related to ceded reinsurance.
|
(3)
|
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, 2019, 2018 and 2017 was $42, $62 and $72, respectively.
|
(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 $0, $1 and $0 as of December 31, 2019, 2018 and 2017, respectively, related to previously presented loss and loss expenses and subrogation.
|
|
|
Surveillance Categories as of December 31, 2019
|
||||||||||||||||||||||||||
|
|
I
|
|
IA
|
|
II
|
|
III
|
|
IV
|
|
V
|
|
Total
|
||||||||||||||
Number of policies
|
|
34
|
|
|
18
|
|
|
11
|
|
|
16
|
|
|
139
|
|
|
3
|
|
|
221
|
|
|||||||
Remaining weighted-average contract period (in years) (1)
|
|
8
|
|
|
21
|
|
|
9
|
|
|
17
|
|
|
14
|
|
|
3
|
|
|
15
|
|
|||||||
Gross insured contractual payments outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Principal
|
|
$
|
668
|
|
|
$
|
510
|
|
|
$
|
277
|
|
|
$
|
857
|
|
|
$
|
3,819
|
|
|
$
|
37
|
|
|
$
|
6,168
|
|
Interest
|
|
340
|
|
|
507
|
|
|
128
|
|
|
366
|
|
|
1,678
|
|
|
11
|
|
|
3,029
|
|
|||||||
Total
|
|
$
|
1,007
|
|
|
$
|
1,016
|
|
|
$
|
404
|
|
|
$
|
1,223
|
|
|
$
|
5,498
|
|
|
$
|
48
|
|
|
$
|
9,197
|
|
Gross undiscounted claim liability
|
|
$
|
2
|
|
|
$
|
44
|
|
|
$
|
21
|
|
|
$
|
541
|
|
|
$
|
1,778
|
|
|
$
|
48
|
|
|
$
|
2,434
|
|
Discount, gross claim liability
|
|
—
|
|
|
(5
|
)
|
|
(1
|
)
|
|
(152
|
)
|
|
(381
|
)
|
|
(2
|
)
|
|
(541
|
)
|
|||||||
Gross claim liability before all subrogation and before reinsurance
|
|
$
|
2
|
|
|
$
|
39
|
|
|
$
|
20
|
|
|
$
|
389
|
|
|
$
|
1,397
|
|
|
$
|
46
|
|
|
$
|
1,893
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross RMBS subrogation (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,777
|
)
|
|
$
|
—
|
|
|
$
|
(1,777
|
)
|
Discount, RMBS subrogation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
49
|
|
|
—
|
|
|
49
|
|
|||||||
Discounted RMBS subrogation, before reinsurance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,727
|
)
|
|
—
|
|
|
(1,727
|
)
|
|||||||
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross other subrogation (3)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(41
|
)
|
|
(666
|
)
|
|
(13
|
)
|
|
(720
|
)
|
|||||||
Discount, other subrogation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
47
|
|
|
3
|
|
|
53
|
|
|||||||
Discounted other subrogation, before reinsurance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(37
|
)
|
|
(620
|
)
|
|
(10
|
)
|
|
(666
|
)
|
|||||||
Gross claim liability, net of all subrogation and discounts, before reinsurance
|
|
$
|
2
|
|
|
$
|
39
|
|
|
$
|
20
|
|
|
$
|
353
|
|
|
$
|
(950
|
)
|
|
$
|
36
|
|
|
$
|
(501
|
)
|
Less: Unearned premium revenue
|
|
$
|
(1
|
)
|
|
$
|
(9
|
)
|
|
$
|
(1
|
)
|
|
$
|
(7
|
)
|
|
$
|
(35
|
)
|
|
$
|
—
|
|
|
$
|
(54
|
)
|
Plus: Loss expense reserves
|
|
1
|
|
|
1
|
|
|
1
|
|
|
4
|
|
|
67
|
|
|
—
|
|
|
73
|
|
|||||||
Gross loss and loss expense reserves
|
|
$
|
1
|
|
|
$
|
30
|
|
|
$
|
20
|
|
|
$
|
349
|
|
|
$
|
(918
|
)
|
|
$
|
36
|
|
|
$
|
(482
|
)
|
Reinsurance recoverable reported on Balance Sheet (4)
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
7
|
|
|
$
|
24
|
|
|
$
|
(10
|
)
|
|
$
|
—
|
|
|
$
|
26
|
|
(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 $26 related to future loss and loss expenses and $0 related to presented loss and loss expenses and subrogation.
|
|
|
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
|
|
$
|
917
|
|
|
$
|
708
|
|
|
$
|
623
|
|
|
$
|
1,705
|
|
|
$
|
5,407
|
|
|
$
|
43
|
|
|
$
|
9,403
|
|
Interest
|
|
488
|
|
|
632
|
|
|
293
|
|
|
6,979
|
|
|
2,178
|
|
|
13
|
|
|
10,583
|
|
|||||||
Total
|
|
$
|
1,404
|
|
|
$
|
1,340
|
|
|
$
|
916
|
|
|
$
|
8,685
|
|
|
$
|
7,585
|
|
|
$
|
57
|
|
|
$
|
19,986
|
|
Gross undiscounted claim liability
|
|
$
|
4
|
|
|
$
|
64
|
|
|
$
|
36
|
|
|
$
|
992
|
|
|
$
|
2,296
|
|
|
$
|
57
|
|
|
$
|
3,448
|
|
Discount, gross claim liability
|
|
—
|
|
|
(13
|
)
|
|
(3
|
)
|
|
(434
|
)
|
|
(638
|
)
|
|
(4
|
)
|
|
(1,092
|
)
|
|||||||
Gross claim liability before all subrogation and before reinsurance
|
|
$
|
4
|
|
|
$
|
51
|
|
|
$
|
33
|
|
|
$
|
558
|
|
|
$
|
1,658
|
|
|
$
|
52
|
|
|
$
|
2,356
|
|
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross RMBS subrogation (2)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
(1,810
|
)
|
|
$
|
—
|
|
|
$
|
(1,810
|
)
|
Discount, RMBS subrogation
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
39
|
|
|
—
|
|
|
39
|
|
|||||||
Discounted RMBS subrogation, before reinsurance
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,771
|
)
|
|
—
|
|
|
(1,771
|
)
|
|||||||
Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Gross other subrogation (3)
|
|
—
|
|
|
(11
|
)
|
|
—
|
|
|
(137
|
)
|
|
(625
|
)
|
|
(13
|
)
|
|
(785
|
)
|
|||||||
Discount, other subrogation
|
|
—
|
|
|
7
|
|
|
—
|
|
|
67
|
|
|
55
|
|
|
4
|
|
|
133
|
|
|||||||
Discounted other subrogation, before reinsurance
|
|
—
|
|
|
(3
|
)
|
|
—
|
|
|
(70
|
)
|
|
(570
|
)
|
|
(9
|
)
|
|
(652
|
)
|
|||||||
Gross claim liability, net of all subrogation and discounts, before reinsurance
|
|
$
|
4
|
|
|
$
|
47
|
|
|
$
|
33
|
|
|
$
|
489
|
|
|
$
|
(682
|
)
|
|
$
|
43
|
|
|
$
|
(66
|
)
|
Less: Unearned premium revenue
|
|
$
|
(1
|
)
|
|
$
|
(10
|
)
|
|
$
|
(5
|
)
|
|
$
|
(36
|
)
|
|
$
|
(54
|
)
|
|
$
|
—
|
|
|
$
|
(107
|
)
|
Plus: Loss expense reserves
|
|
1
|
|
|
4
|
|
|
3
|
|
|
(6
|
)
|
|
63
|
|
|
—
|
|
|
66
|
|
|||||||
Gross loss and loss expense reserves
|
|
$
|
4
|
|
|
$
|
41
|
|
|
$
|
30
|
|
|
$
|
446
|
|
|
$
|
(672
|
)
|
|
$
|
43
|
|
|
$
|
(107
|
)
|
Reinsurance recoverable reported on Balance Sheet (4)
|
|
$
|
—
|
|
|
$
|
7
|
|
|
$
|
4
|
|
|
$
|
26
|
|
|
$
|
(15
|
)
|
|
$
|
—
|
|
|
$
|
23
|
|
(1)
|
Remaining weighted-average contract period is weighted based on projected gross claims over the lives of the respective policies.
|
(2)
|
RMBS subrogation represents Ambac's estimate of subrogation recoveries from RMBS transaction sponsors for R&W breaches.
|
(3)
|
Other subrogation represents subrogation related to excess spread and other contractual cash flows on public finance and structured finance transactions, including RMBS.
|
(4)
|
Reinsurance recoverable reported on Balance Sheet includes reinsurance recoverables of $23 related to future loss and loss expenses and $1 related to presented loss and loss expenses and subrogation.
|
Year ended December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Discounted RMBS subrogation recovery
(gross of reinsurance) at beginning of year
|
$
|
1,771
|
|
|
$
|
1,834
|
|
|
$
|
1,907
|
|
All other changes (1)
|
(43
|
)
|
|
(64
|
)
|
|
(73
|
)
|
|||
Discounted RMBS subrogation recovery (gross of reinsurance) at end of year
|
$
|
1,727
|
|
|
$
|
1,771
|
|
|
$
|
1,834
|
|
(1)
|
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 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
|
|
47%
|
|
$
|
—
|
|
Build America Mutual Assurance Company (2)
|
|
42
|
|
36
|
|
|
Assured Guaranty Corporation
|
|
8
|
|
5
|
|
|
Sompo Japan Nipponkoa Insurance, Inc.
|
|
3
|
|
—
|
|
|
Total
|
|
100%
|
|
$
|
41
|
|
(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.
|
(2)
|
The weighted-average amortizations period is 7.6 years.
|
•
|
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
|
•
|
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 ("OTTI") has occurred, the amount of the 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.
|
•
|
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
|
•
|
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. On April 10 2019, Ambac Assurance requested and OCI approved the termination of this permitted practice and accordingly, all such investments are being combined with other bond investments beginning on January 1, 2019.
|
•
|
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 with an offsetting reduction of $3,433 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 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 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, certain highly liquid pooled fund investments, exchange traded futures contracts, variable rate demand obligations and money market funds.
|
|
|
|
|
l
|
Level 2
|
|
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. Assets and liabilities classified as Level 2 generally include investments in fixed income securities representing municipal, asset-backed and corporate obligations, certain interest rate swap contracts and most long-term debt of variable interest entities consolidated under the Consolidation Topic of the ASC.
|
|
|
|
|
l
|
Level 3
|
|
Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. This hierarchy requires the use of observable market data when available. Assets and liabilities classified as Level 3 include certain uncollateralized derivative contracts, equity interests in Ambac sponsored special purpose entities and certain investments in fixed income securities. Additionally, Level 3 assets and liabilities generally include loan receivables, and certain long-term debt of variable interest entities consolidated under the Consolidation Topic of the ASC.
|
|
|
Carrying
Amount |
|
Total Fair
Value |
|
Fair Value Measurements Categorized as:
|
||||||||||||||
Level 1
|
|
Level 2
|
|
Level 3
|
||||||||||||||||
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Financial assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
215
|
|
|
$
|
215
|
|
|
$
|
—
|
|
|
$
|
215
|
|
|
$
|
—
|
|
Corporate obligations
|
|
1,430
|
|
|
1,430
|
|
|
—
|
|
|
1,430
|
|
|
—
|
|
|||||
Foreign obligations
|
|
44
|
|
|
44
|
|
|
44
|
|
|
—
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
156
|
|
|
156
|
|
|
156
|
|
|
—
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
248
|
|
|
248
|
|
|
—
|
|
|
248
|
|
|
—
|
|
|||||
Commercial mortgage-backed securities
|
|
50
|
|
|
50
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|||||
Collateralized debt obligations
|
|
146
|
|
|
146
|
|
|
—
|
|
|
146
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
287
|
|
|
287
|
|
|
—
|
|
|
215
|
|
|
72
|
|
|||||
Fixed income securities, pledged as collateral:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Short-term
|
|
85
|
|
|
85
|
|
|
85
|
|
|
—
|
|
|
—
|
|
|||||
Short term investments
|
|
653
|
|
|
653
|
|
|
598
|
|
|
55
|
|
|
—
|
|
|||||
Other investments (1)
|
|
478
|
|
|
493
|
|
|
136
|
|
|
—
|
|
|
61
|
|
|||||
Cash, cash equivalents and restricted cash
|
|
79
|
|
|
79
|
|
|
70
|
|
|
9
|
|
|
—
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—asset position
|
|
75
|
|
|
75
|
|
|
—
|
|
|
8
|
|
|
67
|
|
|||||
Other assets - equity in sponsored VIE
|
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|||||
Other assets-Loans
|
|
10
|
|
|
13
|
|
|
—
|
|
|
—
|
|
|
13
|
|
|||||
Variable interest entity assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities: Corporate obligations
|
|
2,957
|
|
|
2,957
|
|
|
—
|
|
|
—
|
|
|
2,957
|
|
|||||
Fixed income securities: Municipal obligations
|
|
164
|
|
|
164
|
|
|
—
|
|
|
164
|
|
|
—
|
|
|||||
Restricted cash
|
|
2
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|||||
Loans
|
|
3,108
|
|
|
3,108
|
|
|
—
|
|
|
—
|
|
|
3,108
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps-asset position
|
|
52
|
|
|
52
|
|
|
—
|
|
|
52
|
|
|
—
|
|
|||||
Total financial assets
|
|
$
|
10,242
|
|
|
$
|
10,260
|
|
|
$
|
1,091
|
|
|
$
|
2,593
|
|
|
$
|
6,281
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long term debt, including accrued interest
|
|
$
|
3,262
|
|
|
$
|
3,274
|
|
|
$
|
—
|
|
|
$
|
2,829
|
|
|
$
|
445
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—liability position
|
|
89
|
|
|
89
|
|
|
—
|
|
|
89
|
|
|
—
|
|
|||||
Liabilities for net financial guarantees written (2)
|
|
(863
|
)
|
|
284
|
|
|
—
|
|
|
—
|
|
|
284
|
|
|||||
Variable interest entity liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt (includes $4,351 at fair value)
|
|
4,554
|
|
|
4,567
|
|
|
—
|
|
|
4,408
|
|
|
159
|
|
|||||
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—liability position
|
|
1,657
|
|
|
1,657
|
|
|
—
|
|
|
1,657
|
|
|
—
|
|
|||||
Total financial liabilities
|
|
$
|
8,699
|
|
|
$
|
9,872
|
|
|
$
|
—
|
|
|
$
|
8,983
|
|
|
$
|
889
|
|
|
|
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
|
|
$
|
880
|
|
|
$
|
880
|
|
|
$
|
—
|
|
|
$
|
880
|
|
|
$
|
—
|
|
Corporate obligations
|
|
1,278
|
|
|
1,278
|
|
|
—
|
|
|
1,278
|
|
|
—
|
|
|||||
Foreign obligations
|
|
31
|
|
|
31
|
|
|
30
|
|
|
1
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
94
|
|
|
94
|
|
|
94
|
|
|
—
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
259
|
|
|
259
|
|
|
—
|
|
|
259
|
|
|
—
|
|
|||||
Collateralized debt obligations
|
|
131
|
|
|
131
|
|
|
—
|
|
|
131
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
442
|
|
|
442
|
|
|
—
|
|
|
370
|
|
|
72
|
|
|||||
Short term investments
|
|
430
|
|
|
430
|
|
|
305
|
|
|
125
|
|
|
—
|
|
|||||
Other investments (1)
|
|
391
|
|
|
367
|
|
|
71
|
|
|
—
|
|
|
16
|
|
|||||
Cash and cash equivalents and restricted cash
|
|
82
|
|
|
82
|
|
|
53
|
|
|
30
|
|
|
—
|
|
|||||
Derivative assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—asset position
|
|
59
|
|
|
59
|
|
|
—
|
|
|
12
|
|
|
47
|
|
|||||
Other assets - equity in sponsored VIE
|
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|||||
Other assets-loans
|
|
10
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|||||
Variable interest entity assets:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities: Corporate obligations
|
|
2,737
|
|
|
2,737
|
|
|
—
|
|
|
—
|
|
|
2,737
|
|
|||||
Restricted cash
|
|
1
|
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|||||
Loans
|
|
4,288
|
|
|
4,288
|
|
|
—
|
|
|
—
|
|
|
4,288
|
|
|||||
Derivative assets; Currency swaps-asset position
|
|
66
|
|
|
66
|
|
|
—
|
|
|
66
|
|
|
—
|
|
|||||
Total financial assets
|
|
$
|
11,186
|
|
|
$
|
11,164
|
|
|
$
|
554
|
|
|
$
|
3,153
|
|
|
$
|
7,177
|
|
Financial liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long term debt, including accrued interest
|
|
$
|
3,305
|
|
|
$
|
3,260
|
|
|
$
|
—
|
|
|
$
|
2,909
|
|
|
$
|
351
|
|
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|||||
Interest rate swaps—liability position
|
|
72
|
|
|
72
|
|
|
—
|
|
|
72
|
|
|
—
|
|
|||||
Futures contracts
|
|
3
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
|
|
|||||
Liabilities for net financial guarantees written (2)
|
|
(718
|
)
|
|
559
|
|
|
—
|
|
|
—
|
|
|
559
|
|
|||||
Variable interest entity liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Long-term debt (includes $5,269 at fair value)
|
|
5,269
|
|
|
5,269
|
|
|
—
|
|
|
5,052
|
|
|
217
|
|
|||||
Derivative liabilities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps—liability position
|
|
1,712
|
|
|
1,712
|
|
|
—
|
|
|
1,712
|
|
|
—
|
|
|||||
Total financial liabilities
|
|
$
|
9,644
|
|
|
$
|
10,876
|
|
|
3
|
|
|
9,745
|
|
|
1,128
|
|
(1)
|
Excluded from the fair value measurement categories in the table above are investment funds of $296 and $280 as of December 31, 2019 and 2018, 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, 2018
|
|
a. Coupon rate
|
2.20%
|
b. Maturity
|
18.93 years
|
c. Yield
|
3.18%
|
(1)
|
Other assets carried at fair value and classified as Level 3 relate to an equity interest in an Ambac sponsored VIE.
|
Level-3 Financial Assets and Liabilities Accounted for at Fair Value
|
|
|
|
|
|
|
|
|
||||||||||||||||||||
|
|
|
|
|
|
|
|
VIE Assets and Liabilities
|
|
|
||||||||||||||||||
Year Ended December 31, 2018
|
|
Investments
|
|
Other
Assets |
|
Derivatives
|
|
Investments
|
|
Loans
|
|
Long-term
Debt |
|
Total
|
||||||||||||||
Balance, beginning of period
|
|
$
|
809
|
|
|
$
|
6
|
|
|
$
|
61
|
|
|
$
|
2,914
|
|
|
$
|
11,529
|
|
|
$
|
(2,758
|
)
|
|
$
|
12,561
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Included in earnings
|
|
36
|
|
|
(1
|
)
|
|
(9
|
)
|
|
16
|
|
|
(201
|
)
|
|
189
|
|
|
30
|
|
|||||||
Included in other comprehensive income
|
|
(53
|
)
|
|
—
|
|
|
—
|
|
|
(158
|
)
|
|
(470
|
)
|
|
91
|
|
|
(590
|
)
|
|||||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Settlements
|
|
(714
|
)
|
|
—
|
|
|
(6
|
)
|
|
(35
|
)
|
|
(624
|
)
|
|
23
|
|
|
(1,356
|
)
|
|||||||
Transfers out of Level 3
|
|
(5
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|||||||
Deconsolidations of VIEs
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5,946
|
)
|
|
2,237
|
|
|
(3,709
|
)
|
|||||||
Balance, end of period
|
|
$
|
72
|
|
|
$
|
5
|
|
|
$
|
46
|
|
|
$
|
2,737
|
|
|
$
|
4,288
|
|
|
$
|
(217
|
)
|
|
$
|
6,930
|
|
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
|
)
|
|
$
|
(10
|
)
|
|
$
|
16
|
|
|
$
|
(63
|
)
|
|
$
|
47
|
|
|
$
|
(11
|
)
|
Level-3 Investments by Class
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
|
|
2019
|
|
2018
|
||||||||||||||||||||
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
|
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
73
|
|
|
$
|
736
|
|
|
$
|
809
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Included in earnings
|
|
2
|
|
|
—
|
|
|
2
|
|
|
1
|
|
|
35
|
|
|
36
|
|
||||||
Included in other comprehensive income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(52
|
)
|
|
(53
|
)
|
||||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Settlements
|
|
(2
|
)
|
|
—
|
|
|
(2
|
)
|
|
(1
|
)
|
|
(713
|
)
|
|
(714
|
)
|
||||||
Transfers out of Level 3
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
||||||
Balance, end of period
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
72
|
|
|
$
|
72
|
|
|
$
|
—
|
|
|
$
|
72
|
|
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, 2017
|
|
Other Asset
Backed Securities |
|
Non-Agency RMBS
|
|
Total
Investments |
||||||
Balance, beginning of period
|
|
$
|
66
|
|
|
$
|
697
|
|
|
$
|
763
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
||||||
Included in earnings
|
|
1
|
|
|
64
|
|
|
65
|
|
|||
Included in other comprehensive income
|
|
6
|
|
|
—
|
|
|
6
|
|
|||
Purchases
|
|
—
|
|
|
36
|
|
|
36
|
|
|||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Sales
|
|
—
|
|
|
(79
|
)
|
|
(79
|
)
|
|||
Settlements
|
|
(1
|
)
|
|
(29
|
)
|
|
(30
|
)
|
|||
Transfers into Level 3
|
|
—
|
|
|
48
|
|
|
48
|
|
|||
Balance, end of period
|
|
$
|
73
|
|
|
$
|
736
|
|
|
$
|
809
|
|
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
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
|
|
2019
|
|
2018
|
||||||||||||||||||||
Year Ended December 31,
|
|
Interest
Rate Swaps |
|
Credit
Derivatives |
|
Total
Derivatives |
|
Interest
Rate Swaps |
|
Credit
Derivatives |
|
Total
Derivatives |
||||||||||||
Balance, beginning of period
|
|
$
|
47
|
|
|
$
|
(1
|
)
|
|
$
|
46
|
|
|
$
|
61
|
|
|
$
|
(1
|
)
|
|
$
|
61
|
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Included in earnings
|
|
24
|
|
|
2
|
|
|
25
|
|
|
(9
|
)
|
|
(1
|
)
|
|
(9
|
)
|
||||||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Settlements
|
|
(4
|
)
|
|
—
|
|
|
(5
|
)
|
|
(5
|
)
|
|
—
|
|
|
(6
|
)
|
||||||
Balance, end of period
|
|
$
|
67
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
$
|
47
|
|
|
$
|
(1
|
)
|
|
$
|
46
|
|
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
|
|
$
|
24
|
|
|
$
|
1
|
|
|
$
|
25
|
|
|
$
|
(9
|
)
|
|
$
|
(1
|
)
|
|
$
|
(10
|
)
|
Level-3 Derivatives by Class
|
|
|
|
|
|
|
||||||
Year Ended December 31, 2017
|
|
Interest
Rate Swaps |
|
Credit
Derivatives |
|
Total
Derivatives |
||||||
Balance, beginning of period
|
|
$
|
(85
|
)
|
|
$
|
(15
|
)
|
|
$
|
(100
|
)
|
Total gains/(losses) realized and unrealized:
|
|
|
|
|
|
|
||||||
Included in earnings
|
|
46
|
|
|
16
|
|
|
63
|
|
|||
Purchases
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Issuances
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Sales
|
|
—
|
|
|
—
|
|
|
—
|
|
|||
Settlements
|
|
100
|
|
|
(2
|
)
|
|
98
|
|
|||
Balance, end of period
|
|
$
|
61
|
|
|
$
|
(1
|
)
|
|
$
|
61
|
|
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
|
|
$
|
7
|
|
|
$
|
2
|
|
|
$
|
9
|
|
|
|
Net
Investment
Income
|
|
Net Gains
(Losses) on Derivative Contracts |
|
Income (Loss)
on Variable
Interest
Entities
|
|
Other
Income (Expense) |
||||||||
Year Ended December 31, 2019
|
|
|
|
|
|
|
|
|
||||||||
Total gains (losses) included in earnings for the period
|
|
$
|
2
|
|
|
$
|
25
|
|
|
$
|
410
|
|
|
$
|
(2
|
)
|
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date
|
|
—
|
|
|
25
|
|
|
353
|
|
|
(2
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2018
|
|
|
|
|
|
|
|
|
||||||||
Total gains (losses) included in earnings for the period
|
|
$
|
36
|
|
|
$
|
(9
|
)
|
|
$
|
4
|
|
|
$
|
(1
|
)
|
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date
|
|
—
|
|
|
(10
|
)
|
|
—
|
|
|
(1
|
)
|
||||
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2017
|
|
|
|
|
|
|
|
|
||||||||
Total gains (losses) included in earnings for the period
|
|
$
|
65
|
|
|
$
|
63
|
|
|
$
|
656
|
|
|
$
|
(1
|
)
|
Changes in unrealized gains (losses) relating to financial instruments still held at the reporting date
|
|
—
|
|
|
9
|
|
|
655
|
|
|
(1
|
)
|
|
|
Amortized
Cost |
|
Gross
Unrealized Gains |
|
Gross
Unrealized Losses |
|
Estimated
Fair Value |
|
Non-Credit Other-
than-temporary Impairments (1) |
||||||||||
December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
194
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
215
|
|
|
$
|
—
|
|
Corporate obligations (2)
|
|
1,396
|
|
|
36
|
|
|
2
|
|
|
1,430
|
|
|
—
|
|
|||||
Foreign obligations
|
|
44
|
|
|
1
|
|
|
—
|
|
|
44
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
157
|
|
|
2
|
|
|
2
|
|
|
156
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
200
|
|
|
47
|
|
|
—
|
|
|
248
|
|
|
—
|
|
|||||
Commercial mortgage-backed securities
|
|
49
|
|
|
1
|
|
|
—
|
|
|
50
|
|
|
—
|
|
|||||
Collateralized debt obligations
|
|
147
|
|
|
—
|
|
|
1
|
|
|
146
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
263
|
|
|
24
|
|
|
—
|
|
|
287
|
|
|
—
|
|
|||||
|
|
2,450
|
|
|
132
|
|
|
5
|
|
|
2,577
|
|
|
—
|
|
|||||
Short-term
|
|
653
|
|
|
—
|
|
|
—
|
|
|
653
|
|
|
—
|
|
|||||
|
|
3,103
|
|
|
132
|
|
|
5
|
|
|
3,230
|
|
|
—
|
|
|||||
Fixed income securities pledged as collateral:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Short-term
|
|
85
|
|
|
—
|
|
|
—
|
|
|
85
|
|
|
—
|
|
|||||
Total collateralized investments
|
|
85
|
|
|
—
|
|
|
—
|
|
|
85
|
|
|
—
|
|
|||||
Total available-for-sale investments
|
|
$
|
3,187
|
|
|
$
|
132
|
|
|
$
|
5
|
|
|
$
|
3,314
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||
December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
||||||||||
Municipal obligations
|
|
$
|
883
|
|
|
$
|
14
|
|
|
$
|
17
|
|
|
$
|
880
|
|
|
$
|
—
|
|
Corporate obligations (2)
|
|
1,289
|
|
|
6
|
|
|
17
|
|
|
1,278
|
|
|
—
|
|
|||||
Foreign obligations
|
|
30
|
|
|
—
|
|
|
—
|
|
|
31
|
|
|
—
|
|
|||||
U.S. government obligations
|
|
94
|
|
|
1
|
|
|
1
|
|
|
94
|
|
|
—
|
|
|||||
Residential mortgage-backed securities
|
|
222
|
|
|
38
|
|
|
1
|
|
|
259
|
|
|
—
|
|
|||||
Collateralized debt obligations
|
|
133
|
|
|
—
|
|
|
2
|
|
|
131
|
|
|
—
|
|
|||||
Other asset-backed securities
|
|
370
|
|
|
73
|
|
|
1
|
|
|
442
|
|
|
—
|
|
|||||
|
|
3,021
|
|
|
133
|
|
|
38
|
|
|
3,116
|
|
|
—
|
|
|||||
Short-term
|
|
430
|
|
|
—
|
|
|
—
|
|
|
430
|
|
|
—
|
|
|||||
Total available-for-sale investments
|
|
$
|
3,451
|
|
|
$
|
133
|
|
|
$
|
38
|
|
|
$
|
3,546
|
|
|
$
|
—
|
|
(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, 2019 and 2018.
|
(2)
|
Includes Ambac's holdings of the secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions.
|
|
|
Amortized
Cost |
|
Estimated
Fair Value |
||||
Due in one year or less
|
|
$
|
749
|
|
|
$
|
749
|
|
Due after one year through five years
|
|
1,157
|
|
|
1,173
|
|
||
Due after five years through ten years
|
|
477
|
|
|
501
|
|
||
Due after ten years
|
|
145
|
|
|
160
|
|
||
|
|
2,528
|
|
|
2,583
|
|
||
Residential mortgage-backed securities
|
|
200
|
|
|
248
|
|
||
Commercial mortgage-backed securities
|
|
49
|
|
|
50
|
|
||
Collateralized debt obligations
|
|
147
|
|
|
146
|
|
||
Other asset-backed securities
|
|
263
|
|
|
287
|
|
||
Total
|
|
$
|
3,187
|
|
|
$
|
3,314
|
|
|
|
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, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Fixed income securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
Municipal obligations
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
—
|
|
Corporate obligations
|
|
63
|
|
|
2
|
|
|
5
|
|
|
—
|
|
|
68
|
|
|
2
|
|
||||||
Foreign obligations
|
|
20
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
20
|
|
|
—
|
|
||||||
U.S. government obligations
|
|
36
|
|
|
2
|
|
|
2
|
|
|
—
|
|
|
38
|
|
|
2
|
|
||||||
Residential mortgage-backed securities
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
5
|
|
|
—
|
|
||||||
Commercial mortgage-backed securities
|
|
7
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
—
|
|
||||||
Collateralized debt obligations
|
|
53
|
|
|
—
|
|
|
63
|
|
|
1
|
|
|
116
|
|
|
1
|
|
||||||
Other asset-backed securities
|
|
2
|
|
|
—
|
|
|
7
|
|
|
—
|
|
|
10
|
|
|
—
|
|
||||||
|
|
200
|
|
|
4
|
|
|
88
|
|
|
1
|
|
|
288
|
|
|
5
|
|
||||||
Short-term
|
|
201
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
201
|
|
|
—
|
|
||||||
Total temporarily impaired securities
|
|
$
|
401
|
|
|
$
|
4
|
|
|
$
|
88
|
|
|
$
|
1
|
|
|
$
|
489
|
|
|
$
|
5
|
|
|
|
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
|
|
$
|
538
|
|
|
$
|
16
|
|
|
$
|
29
|
|
|
$
|
1
|
|
|
$
|
566
|
|
|
$
|
17
|
|
Corporate obligations
|
|
307
|
|
|
9
|
|
|
190
|
|
|
9
|
|
|
497
|
|
|
17
|
|
||||||
Foreign obligations
|
|
1
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
6
|
|
|
—
|
|
||||||
U.S. government obligations
|
|
6
|
|
|
—
|
|
|
58
|
|
|
—
|
|
|
64
|
|
|
1
|
|
||||||
Residential mortgage-backed securities
|
|
35
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
35
|
|
|
1
|
|
||||||
Collateralized debt obligations
|
|
124
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
124
|
|
|
2
|
|
||||||
Other asset-backed securities
|
|
14
|
|
|
—
|
|
|
77
|
|
|
1
|
|
|
91
|
|
|
1
|
|
||||||
|
|
1,024
|
|
|
27
|
|
|
360
|
|
|
11
|
|
|
1,384
|
|
|
38
|
|
||||||
Short-term
|
|
115
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
115
|
|
|
—
|
|
||||||
Total temporarily impaired securities
|
|
$
|
1,139
|
|
|
$
|
27
|
|
|
$
|
360
|
|
|
$
|
11
|
|
|
$
|
1,499
|
|
|
$
|
38
|
|
Year Ended
December 31,
|
|
2019
|
|
2018
|
|
2017
|
||||||
Gross realized gains on securities
|
|
$
|
64
|
|
|
$
|
111
|
|
|
$
|
29
|
|
Gross realized losses on securities
|
|
(5
|
)
|
|
(7
|
)
|
|
(19
|
)
|
|||
Foreign exchange (losses) gains
|
|
22
|
|
|
7
|
|
|
(5
|
)
|
|||
Net realized gains (losses)
|
|
$
|
81
|
|
|
$
|
111
|
|
|
$
|
5
|
|
Net other-than-temporary impairments (1)
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
(20
|
)
|
(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,
|
|
2019
|
|
2018
|
|
2017
|
|||
Balance, beginning of period
|
|
12
|
|
|
67
|
|
|
52
|
|
Additions for credit impairments recognized on:
|
|
|
|
|
|
|
|||
Securities not previously impaired
|
|
—
|
|
|
1
|
|
|
3
|
|
Securities previously impaired
|
|
—
|
|
|
—
|
|
|
12
|
|
Reductions for credit impairments previously recognized on:
|
|
|
|
|
|
|
|||
Securities that matured or were sold during the period
|
|
(1
|
)
|
|
(56
|
)
|
|
—
|
|
Balance, end of period
|
|
12
|
|
|
12
|
|
|
67
|
|
|
|
Municipal
Obligations |
|
Corporate
Obligations (3) |
|
Mortgage
and Asset- backed Securities |
|
Total
|
|
Weighted
Average Underlying Rating (1) (3) |
||||||||
December 31, 2019:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Ambac Assurance Corporation (2)
|
|
$
|
176
|
|
|
$
|
535
|
|
|
$
|
442
|
|
|
$
|
1,153
|
|
|
B-
|
National Public Finance Guarantee Corporation
|
|
11
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
BBB-
|
||||
Total
|
|
$
|
187
|
|
|
$
|
535
|
|
|
$
|
442
|
|
|
$
|
1,164
|
|
|
B-
|
|
|
|
|
|
|
|
|
|
|
|
||||||||
December 31, 2018:
|
|
|
|
|
|
|
|
|
|
|
||||||||
Ambac Assurance Corporation (2)
|
|
$
|
833
|
|
|
$
|
656
|
|
|
$
|
599
|
|
|
$
|
2,089
|
|
|
CCC
|
National Public Finance Guarantee Corporation
|
|
16
|
|
|
—
|
|
|
—
|
|
|
16
|
|
|
BBB-
|
||||
Total
|
|
$
|
849
|
|
|
$
|
656
|
|
|
$
|
599
|
|
|
$
|
2,105
|
|
|
CCC
|
(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 asset-backed securities with a fair value of $0 and $145 at December 31, 2019 and 2018, respectively, insured by Ambac UK.
|
(3)
|
Represents Ambac's holdings of secured notes issued by Ambac LSNI in connection with the Rehabilitation Exit Transactions. Ambac LSNI secured notes are insured by Ambac Assurance and are excluded from the calculation of weighted average underlying rating.
|
Class of Funds
December 31,
|
|
2019
|
|
2018
|
|
Redemption Frequency
|
|
Redemption Notice Period
|
||||
Real estate properties (1)
|
|
$
|
16
|
|
|
$
|
16
|
|
|
quarterly
|
|
10 business days
|
Hedge funds (2)
|
|
65
|
|
|
—
|
|
|
quarterly
|
|
90 days
|
||
High yield and leveraged loans (3) (8)
|
|
176
|
|
|
114
|
|
|
daily
|
|
0 - 30 days
|
||
Private credit (4)
|
|
51
|
|
|
84
|
|
|
quarterly
|
|
180 days if permitted
|
||
Insurance-linked investments (5)
|
|
3
|
|
|
29
|
|
|
fully redeemed
|
|
none
|
||
Equity market investments (6) (8)
|
|
55
|
|
|
44
|
|
|
daily
|
|
0 days
|
||
Investment grade floating rate income (7)
|
|
66
|
|
|
63
|
|
|
weekly
|
|
0 days
|
||
Total equity investments in pooled funds
|
|
$
|
432
|
|
|
$
|
351
|
|
|
|
|
|
(1)
|
Investments consist of UK property to generate income and capital growth.
|
(2)
|
This class seeks to generate superior risk-adjusted returns through selective asset sourcing, active trading and hedging strategies within structured credit markets, including mortgage-backed securities, commercial real estate securities and loans, CLOs, REITs and asset backed securities.
|
(3)
|
This class of funds includes investments in a range of instruments including high-yield bonds, leveraged loans, CLOs, ABS and floating rate notes to generate income and capital appreciation.
|
(4)
|
This class aims to obtain high long-term return primarily through credit and preferred equity investments with low liquidity and defined term.
|
(5)
|
This class seeks to generate returns from insurance markets through investments in catastrophe bonds, life insurance and other insurance linked investments.
|
(6)
|
This class of funds includes investments in a range of instruments that include funds that have diversified exposure to global equity market returns through holdings of market index funds.
|
(7)
|
This class of funds includes investments in high quality floating rate debt securities including ABS and corporate floating rate notes (FRNs) as well as ultra-short term bonds and money market instruments.
|
(8)
|
High yield and leveraged loans products include $81 at December 31, 2019 and $27 at December 31, 2018 and equity market investments include $55 at December 31, 2019 and $44 at December 31, 2018 that have readily determinable fair values priced through pricing vendors.
|
Year Ended
December 31,
|
|
2019
|
|
2018
|
|
2017
|
||||||
Fixed income securities
|
|
$
|
183
|
|
|
$
|
265
|
|
|
$
|
337
|
|
Short-term investments
|
|
17
|
|
|
11
|
|
|
8
|
|
|||
Loans
|
|
1
|
|
|
1
|
|
|
1
|
|
|||
Investment expense
|
|
(6
|
)
|
|
(7
|
)
|
|
(8
|
)
|
|||
Securities available-for-sale and short-term
|
|
196
|
|
|
271
|
|
|
338
|
|
|||
Other investments
|
|
32
|
|
|
2
|
|
|
23
|
|
|||
Total net investment income
|
|
$
|
227
|
|
|
$
|
273
|
|
|
$
|
361
|
|
Year Ended
December 31,
|
|
2019
|
|
2018
|
|
2017
|
||||||
Net gains (losses) recognized during the period on trading securities
|
|
$
|
24
|
|
|
$
|
(3
|
)
|
|
$
|
18
|
|
Less: net gains (losses) recognized during the reporting period on trading securities sold during the period
|
|
7
|
|
|
1
|
|
|
5
|
|
|||
Unrealized gains (losses) recognized during the reporting period on trading securities still held at the reporting date
|
|
$
|
17
|
|
|
$
|
(4
|
)
|
|
$
|
13
|
|
|
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, 2019:
|
|
|
|
|
|
|
|
|
|
||||||||||
Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
75
|
|
Total non-VIE derivative assets
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
75
|
|
|
$
|
—
|
|
|
$
|
75
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest rate swaps
|
89
|
|
|
—
|
|
|
90
|
|
|
89
|
|
|
1
|
|
|||||
Total non-VIE derivative liabilities
|
$
|
90
|
|
|
$
|
—
|
|
|
$
|
90
|
|
|
$
|
89
|
|
|
$
|
1
|
|
Variable Interest Entities Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
Total VIE derivative assets
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
—
|
|
|
$
|
52
|
|
Variable Interest Entities Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
1,657
|
|
|
$
|
—
|
|
|
$
|
1,657
|
|
|
$
|
—
|
|
|
$
|
1,657
|
|
Total VIE derivative liabilities
|
$
|
1,657
|
|
|
$
|
—
|
|
|
$
|
1,657
|
|
|
$
|
—
|
|
|
$
|
1,657
|
|
|
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
|
$
|
60
|
|
|
$
|
—
|
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
59
|
|
Total non-VIE derivative assets
|
$
|
60
|
|
|
$
|
—
|
|
|
$
|
59
|
|
|
$
|
—
|
|
|
$
|
59
|
|
Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Credit derivatives
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest rate swaps
|
72
|
|
|
—
|
|
|
72
|
|
|
67
|
|
|
5
|
|
|||||
Futures contracts
|
3
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|||||
Total non-VIE derivative liabilities
|
$
|
77
|
|
|
$
|
—
|
|
|
$
|
77
|
|
|
$
|
71
|
|
|
$
|
6
|
|
Variable Interest Entities Derivative Assets:
|
|
|
|
|
|
|
|
|
|
||||||||||
Currency swaps
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
66
|
|
Total VIE derivative assets
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
66
|
|
|
$
|
—
|
|
|
$
|
66
|
|
Variable Interest Entities Derivative Liabilities:
|
|
|
|
|
|
|
|
|
|
||||||||||
Interest rate swaps
|
$
|
1,712
|
|
|
$
|
—
|
|
|
$
|
1,712
|
|
|
$
|
—
|
|
|
$
|
1,712
|
|
Total VIE derivative liabilities
|
$
|
1,712
|
|
|
$
|
—
|
|
|
$
|
1,712
|
|
|
$
|
—
|
|
|
$
|
1,712
|
|
|
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, |
||||||||||||
|
|
2019
|
|
2018
|
|
2017
|
|||||||||
Non-VIE derivatives:
|
|
|
|
|
|
|
|
|
|
||||||
Futures contracts
|
Net gains (losses) on derivative contracts
|
|
(45
|
)
|
|
7
|
|
|
11
|
|
|||||
Interest rate swaps
|
Net gains (losses) on derivative contracts
|
|
(6
|
)
|
|
1
|
|
|
49
|
|
|||||
Credit derivatives
|
Net gains (losses) on derivative contracts
|
|
2
|
|
|
(1
|
)
|
|
16
|
|
|||||
Total non-VIE derivatives
|
|
|
|
|
(50
|
)
|
|
7
|
|
|
76
|
|
|||
Variable Interest Entities:
|
|
|
|
|
|
|
|
|
|
||||||
Interest rate swaps
|
Income (loss) on variable interest entities
|
|
(20
|
)
|
|
493
|
|
|
(127
|
)
|
|||||
Currency swaps
|
Income (loss) on variable interest entities
|
|
(12
|
)
|
|
11
|
|
|
(26
|
)
|
|||||
Total Variable Interest Entities
|
|
|
|
|
(32
|
)
|
|
505
|
|
|
(152
|
)
|
|||
Total derivative contracts
|
|
|
|
|
$
|
(82
|
)
|
|
$
|
512
|
|
|
$
|
(76
|
)
|
|
Notional - December 31,
|
||||||
Type of Derivative
|
2019
|
|
2018
|
||||
Interest rate swaps—pay-fixed/receive-variable
|
$
|
1,261
|
|
|
$
|
1,122
|
|
US Treasury futures contracts—short
|
755
|
|
|
1,760
|
|
||
Interest rate swaps—receive-fixed/pay-variable
|
332
|
|
|
493
|
|
|
Notional - December 31,
|
||||||
Type of VIE Derivative
|
2019
|
|
2018
|
||||
Interest rate swaps—receive-fixed/pay-variable
|
$
|
1,194
|
|
|
$
|
1,400
|
|
Interest rate swaps—pay-fixed/receive-variable
|
1,176
|
|
|
1,177
|
|
||
Currency swaps
|
329
|
|
|
345
|
|
||
Credit derivatives
|
9
|
|
|
10
|
|
December 31,
|
|
2019
|
|
2018
|
||||||||||||||||||||
|
|
Par Value
|
|
Unamortized Discount
|
|
Carrying Value
|
|
Par Value
|
|
Unamortized Discount
|
|
Carrying Value
|
||||||||||||
Ambac Assurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||
5.1% surplus notes
|
|
$
|
531
|
|
|
$
|
(14
|
)
|
|
$
|
517
|
|
|
$
|
531
|
|
|
$
|
(44
|
)
|
|
$
|
487
|
|
5.1% junior surplus notes
|
|
365
|
|
|
(113
|
)
|
|
252
|
|
|
367
|
|
|
(117
|
)
|
|
250
|
|
||||||
Ambac note
|
|
1,763
|
|
|
—
|
|
|
1,763
|
|
|
1,940
|
|
|
—
|
|
|
1,940
|
|
||||||
Tier 2 notes
|
|
281
|
|
|
(4
|
)
|
|
278
|
|
|
259
|
|
|
(7
|
)
|
|
252
|
|
||||||
Ambac UK debt
|
|
41
|
|
|
(28
|
)
|
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||
Long-term debt
|
|
$
|
2,980
|
|
|
$
|
(159
|
)
|
|
$
|
2,822
|
|
|
$
|
3,096
|
|
|
$
|
(167
|
)
|
|
$
|
2,929
|
|
2020
|
|
$
|
531
|
|
2021
|
|
—
|
|
|
2022
|
|
—
|
|
|
2023
|
|
1,763
|
|
|
2024
|
|
—
|
|
|
Thereafter
|
|
687
|
|
|
Total
|
|
$
|
2,980
|
|
•
|
Par value at December 31, 2019 and 2018 includes $15 and $17, 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. A portion of the principal balance of the originally issued notes were eligible to be reduced based on rents paid to OSS by Ambac Assurance after December 31, 2015. Par value of these junior surplus notes was reduced by $2 and $4 during
|
•
|
Par value at December 31, 2019 and 2018 includes $350 of a junior surplus note originally issued to AFG pursuant to AFG's Chapter 11 Reorganization Plan in accordance with the Mediation Agreement dated September 21, 2011, among AFG, Ambac Assurance, the Segregated Account, the Rehabilitator, the OCI and the Official Committee of Unsecured Creditors of AFG, and that AFG sold to a Trust on August 28, 2014. This junior surplus note was recorded at a discount to par based on its fair value on August 28, 2014. Ambac is accreting the discount on this junior surplus note into earnings using the effective interest method, based on an imputed interest rate of 8.4%.
|
•
|
The portion of the Ambac Note issued in connection with the exchange of surplus notes ("Ambac Note A") was accounted for as a debt modification since the creditors before and after the exchange remained the same and the change in terms was not considered substantial. A substantial change is considered to be a change in cash flows of equal to or greater than 10%, and because the change in cash flows was less than 10%, debt modification accounting is appropriate. Under debt modification accounting, Ambac Note A was recorded at a discount to par based on the carrying value of the surplus notes less the cash consideration paid. Furthermore, no gain
|
•
|
The portion of the Ambac Note issued in connection with the exchange of Deferred Amounts ("Ambac Note B") was recorded at fair value. The Deferred Amount exchange was accounted for as an extinguishment of the Deferred Amounts with the gain reflected as a benefit to loss and loss expenses. Any consideration paid directly related to the issuance of Ambac Note B was capitalized and amortized as part of the effective yield calculation.
|
Jurisdiction
|
Tax Year
|
United States
|
2010
|
New York State
|
2013
|
New York City
|
2015
|
United Kingdom
|
2016
|
Italy
|
2015
|
Year Ended
December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
U.S.
|
$
|
(174
|
)
|
|
$
|
264
|
|
|
$
|
(451
|
)
|
Foreign
|
(9
|
)
|
|
8
|
|
|
167
|
|
|||
Total
|
$
|
(183
|
)
|
|
$
|
273
|
|
|
$
|
(284
|
)
|
Year Ended
December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Current taxes
|
|
|
|
|
|
||||||
U. S. federal
|
$
|
—
|
|
|
$
|
(2
|
)
|
|
$
|
(30
|
)
|
U.S. state and local
|
(3
|
)
|
|
2
|
|
|
2
|
|
|||
Foreign
|
37
|
|
|
(1
|
)
|
|
41
|
|
|||
Total current taxes
|
34
|
|
|
—
|
|
|
13
|
|
|||
Deferred taxes
|
|
|
|
|
|
||||||
Foreign
|
(1
|
)
|
|
5
|
|
|
31
|
|
|||
Total deferred taxes
|
$
|
(1
|
)
|
|
$
|
5
|
|
|
$
|
31
|
|
Provision for income taxes
|
$
|
32
|
|
|
$
|
5
|
|
|
$
|
44
|
|
Year Ended
December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Total income taxes charged to net income
|
$
|
32
|
|
|
$
|
5
|
|
|
$
|
44
|
|
Income taxes charged (credited) to stockholders’ equity:
|
|
|
|
|
|
||||||
Unrealized gains (losses) on investment securities
|
14
|
|
|
12
|
|
|
(31
|
)
|
|||
Unrealized gains (losses) on foreign currency translations
|
—
|
|
|
—
|
|
|
26
|
|
|||
Valuation allowance to equity
|
(23
|
)
|
|
(9
|
)
|
|
5
|
|
|||
Total charged to stockholders’ equity:
|
(8
|
)
|
|
3
|
|
|
—
|
|
|||
Total effect of income taxes
|
$
|
24
|
|
|
$
|
8
|
|
|
$
|
44
|
|
|
2019
|
|
2018
|
|
2017
|
|||||||||||||||
Year Ended December 31,
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|
Amount
|
|
%
|
|||||||||
Tax on income from continuing operations at statutory rate
|
$
|
(38
|
)
|
|
21.0
|
%
|
|
$
|
57
|
|
|
21.0
|
%
|
|
$
|
(99
|
)
|
|
35.0
|
%
|
Changes in expected tax resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||
Tax-exempt interest
|
(3
|
)
|
|
1.8
|
%
|
|
(7
|
)
|
|
(2.5
|
)%
|
|
(6
|
)
|
|
2.1
|
%
|
|||
Foreign taxes
|
40
|
|
|
(22.1
|
)%
|
|
10
|
|
|
3.9
|
%
|
|
(18
|
)
|
|
6.2
|
%
|
|||
Substantiation adjustment
|
28
|
|
|
(15.3
|
)%
|
|
(60
|
)
|
|
(22.0
|
)%
|
|
36
|
|
|
(12.7
|
)%
|
|||
Valuation allowance
|
8
|
|
|
(4.4
|
)%
|
|
5
|
|
|
1.9
|
%
|
|
128
|
|
|
(44.9
|
)%
|
|||
Change in Tax Law
|
—
|
|
|
—
|
%
|
|
(2
|
)
|
|
(0.7
|
)%
|
|
2
|
|
|
(0.7
|
)%
|
|||
Other, net
|
(2
|
)
|
|
1.3
|
%
|
|
1
|
|
|
0.4
|
%
|
|
2
|
|
|
(0.7
|
)%
|
|||
Tax expense on income from continuing operations
|
$
|
32
|
|
|
(17.7
|
)%
|
|
$
|
5
|
|
|
2.0
|
%
|
|
$
|
44
|
|
|
(15.7
|
)%
|
Year Ended
December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Balance, beginning of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Increases related to prior year tax positions
|
—
|
|
|
—
|
|
|
—
|
|
|||
Decreases related to prior year tax positions
|
—
|
|
|
—
|
|
|
—
|
|
|||
Balance, end of period
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
December 31,
|
2019
|
|
2018
|
||||
Deferred tax liabilities:
|
|
|
|
||||
Insurance intangible
|
$
|
90
|
|
|
$
|
151
|
|
Variable interest entities
|
12
|
|
|
19
|
|
||
Investments
|
32
|
|
|
26
|
|
||
Unearned premiums and credit fees
|
42
|
|
|
48
|
|
||
Other
|
8
|
|
|
8
|
|
||
Total deferred tax liabilities
|
183
|
|
|
252
|
|
||
Deferred tax assets:
|
|
|
|
||||
Net operating loss and capital carryforward
|
742
|
|
|
719
|
|
||
Loss reserves
|
148
|
|
|
227
|
|
||
Debentures
|
29
|
|
|
23
|
|
||
Compensation
|
7
|
|
|
10
|
|
||
Other
|
1
|
|
|
2
|
|
||
Subtotal deferred tax assets
|
927
|
|
|
980
|
|
||
Valuation allowance
|
777
|
|
|
768
|
|
||
Total deferred tax assets
|
151
|
|
|
212
|
|
||
Net deferred tax liability
|
$
|
32
|
|
|
$
|
40
|
|
NOL Usage
Tier
|
Allocated NOLs
|
|
Applicable
Percentage
|
|
A
|
The first
|
$479
|
|
15%
|
B
|
The next
|
$1,057
|
after Tier A
|
40%
|
C
|
The next
|
$1,057
|
after Tier B
|
10%
|
D
|
The next
|
$1,057
|
after Tier C
|
15%
|
2020
|
|
$
|
—
|
|
2021
|
|
—
|
|
|
2022
|
|
—
|
|
|
2023
|
|
—
|
|
|
2024
|
|
1
|
|
|
2025-2029
|
|
3
|
|
|
Total
|
|
$
|
5
|
|
Year Ended
December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Stock options
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Restricted stock units
|
4
|
|
|
6
|
|
|
2
|
|
|||
Performance awards (1) (2)
|
8
|
|
|
6
|
|
|
3
|
|
|||
Total stock-based compensation
|
$
|
12
|
|
|
$
|
12
|
|
|
$
|
4
|
|
Total stock-based compensation (after-tax)
|
$
|
12
|
|
|
$
|
12
|
|
|
$
|
4
|
|
(1)
|
Represents expense related to performance stock unit portion of performance awards. Certain performance awards are in the form of cash. Cash based compensation expense related to performance awards granted to US employees was $0, $1 and $2 for the years ended December 31, 2019, 2018 and 2017, respectively.
|
(2)
|
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
|
16,667
|
|
|
$
|
20.63
|
|
|
|
|
|
||
Granted
|
—
|
|
|
—
|
|
|
|
|
|
|||
Exercised
|
—
|
|
|
—
|
|
|
|
|
|
|||
Forfeited or expired
|
—
|
|
|
—
|
|
|
|
|
|
|||
Outstanding at end of period
|
16,667
|
|
|
$
|
20.63
|
|
|
$
|
—
|
|
|
0.97
|
Exercisable
|
16,667
|
|
|
$
|
20.63
|
|
|
$
|
—
|
|
|
0.97
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|||
Outstanding at beginning of period
|
645,028
|
|
|
$
|
17.17
|
|
Granted
|
248,861
|
|
|
19.75
|
|
|
Delivered or returned to plan (1)
|
(189,832
|
)
|
|
16.76
|
|
|
Forfeited
|
(1,478
|
)
|
|
20.11
|
|
|
Outstanding at end of period
|
702,579
|
|
|
$
|
18.19
|
|
(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, 2019, Ambac purchased 72,977 of shares from employees that settled restricted stock units to meet the required tax withholdings.
|
•
|
AFG performance will be evaluated relative to cumulative earnings before interest, taxes, depreciation and amortization over the vesting period (exclusive of Ambac Assurance and its subsidiaries' earnings), which is intended to reward participants for generating pre-tax income.
|
•
|
Ambac Assurance performance will be evaluated according to changes in Ambac Assurance's assets relative to its insurance and financial obligations, which is intended to reward participants for increases in the relative value of Ambac Assurance, as well as reductions in watch list and adversely classified credits, which is intended to reward participants for de-risking the insured portfolio.
|
•
|
In 2019, a relative Total Shareholder Return modifier was added as an additional metric with respect to the LTIP award payouts. The modifier will cause the payout at the end of the performance period to be increased or decreased by 10% if AFG's stock performance compared to a peer group is at or
|
|
Shares
|
|
Weighted Average
Grant Date
Fair Value
|
|||
Outstanding at beginning of period
|
516,999
|
|
|
$
|
17.02
|
|
Granted (1)
|
230,391
|
|
|
19.17
|
|
|
Delivered (2)
|
(166,353
|
)
|
|
15.52
|
|
|
Forfeited (1)
|
(8,151
|
)
|
|
18.11
|
|
|
Performance adjustment (3)
|
77,326
|
|
|
15.52
|
|
|
Outstanding at end of period
|
650,212
|
|
|
$
|
17.98
|
|
(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, 2019, Ambac purchased 64,086 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 2016 based upon the attainment of performance metrics at the end of the performance period.
|
Year Ended December 31,
|
|
2019
|
||
Operating lease cost
|
|
$
|
7
|
|
Variable lease cost
|
|
—
|
|
|
Sublease income
|
|
(1
|
)
|
|
Total lease cost
|
|
$
|
7
|
|
Year Ended December 31,
|
|
2019
|
||
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
6
|
|
Right-of-use assets obtained in exchange for operating lease liabilities (non-cash) (1)
|
|
30
|
|
(1)
|
Includes right-of-use assets of $14 for the year ended December 31, 2019 for leases which existed prior to the New Lease Standard implementation date of January 1, 2019.
|
December 31,
|
|
2019
|
||
Operating leases:
|
|
|
||
Operating lease right of use assets
|
|
$
|
25
|
|
Operating lease liabilities
|
|
29
|
|
|
Weighted average remaining lease term:
|
|
|
||
Operating leases
|
|
9.9 years
|
|
|
Weighted average discount rate:
|
|
|
||
Operating leases
|
|
7.9
|
%
|
As of December 31, 2019
|
|
Operating Leases
|
||
2020
|
|
$
|
4
|
|
2021
|
|
4
|
|
|
2022
|
|
4
|
|
|
2023
|
|
4
|
|
|
2024
|
|
4
|
|
|
Thereafter
|
|
22
|
|
|
Total lease payments
|
|
42
|
|
|
Less: imputed interest
|
|
(13
|
)
|
|
Total
|
|
$
|
29
|
|
As of December 31, 2019
|
|
Operating Leases
|
||
2020
|
|
$
|
1
|
|
2021
|
|
1
|
|
|
2022
|
|
1
|
|
|
2023
|
|
1
|
|
|
2024
|
|
1
|
|
|
Thereafter
|
|
6
|
|
|
Total lease receipts
|
|
$
|
12
|
|
•
|
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, 2017, Ambac Assurance sought leave from the First Department to appeal certain rulings in its May 16, 2017 decision to the Court of Appeals, which the First Department granted on July 25, 2017. On June 27, 2018, the Court of Appeals denied Ambac Assurance’s appeal and affirmed the rulings of the First Department.
|
•
|
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
|
•
|
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 Court (the “2015 New York Action”), asserting claims identical to claims they asserted in a litigation filed on December 30, 2014 in Wisconsin Circuit Court for Dane County, Case No 14 CV 3511 (the “Wisconsin Action”). Specifically, in each action Ambac Assurance asserted a claim for fraudulent inducement in connection with its issuance of insurance policies relating to five residential mortgage-backed securitizations that are not the subject of Ambac Assurance’s previously filed lawsuit against the same defendant. On July 21, 2015, plaintiffs filed a complaint in the 2015 New York Action and a motion to stay the 2015 New York Action pending appeal and litigation of the Wisconsin Action. Countrywide opposed plaintiffs’ motion to stay and on August 10, 2015, Countrywide filed a motion to dismiss the complaint. On September 20, 2016, the court granted Ambac Assurance’s motion to stay and held Countrywide’s motion to dismiss in abeyance pending resolution of the Wisconsin Action. Following the dismissal of the Wisconsin Action on March 13, 2018, the court in the 2015 New York Action vacated its stay on March 30, 2018, and restored Countrywide’s motion to dismiss to the calendar. The parties submitted supplemental letter briefs on April 11, 2018 addressing newly-issued relevant authority.
|
•
|
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 has been completed. The court has not yet set a schedule for summary judgment or for trial.
|
•
|
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
|
•
|
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,
|
•
|
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 answer, Ambac Assurance opposed DBNT’s request for an order instructing it to accept the proposed settlement on the basis that DBNT breached its obligations by failing to investigate and enforce breaches of representations and warranties in Harborview 2006-09, failing to immediately reject the proposed settlement, and instituting an inadequate certificateholder approval process. Ambac sought a period of discovery before resolution on the merits. Ambac Assurance has issued document requests to DBNT and subpoenas for documents to Countrywide Home Loans and Bank of America N.A. and DBNT has issued document requests to Ambac Assurance. The parties have exchanged documents. DBNT and Ambac Assurance have each served a notice of corporate deposition upon the other. On October 30, 2019, the court ruled that Ambac Assurance does not need to present a witness for deposition. Under the current case schedule discovery is to be completed by March 10, 2020 and merits briefing by July 10, 2020.
|
|
|
2019 Quarters
|
|
2018 Quarters
|
||||||||||||||||||||||||||||
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
|
First
|
|
Second
|
|
Third
|
|
Fourth
|
||||||||||||||||
Gross premiums written
|
|
$
|
3
|
|
|
$
|
(21
|
)
|
|
$
|
(13
|
)
|
|
$
|
2
|
|
|
$
|
4
|
|
|
$
|
(1
|
)
|
|
$
|
(23
|
)
|
|
$
|
(5
|
)
|
Net premiums earned
|
|
28
|
|
|
8
|
|
|
10
|
|
|
20
|
|
|
31
|
|
|
26
|
|
|
26
|
|
|
29
|
|
||||||||
Net investment income
|
|
55
|
|
|
86
|
|
|
45
|
|
|
42
|
|
|
110
|
|
|
67
|
|
|
58
|
|
|
37
|
|
||||||||
Net other than temporary impairment losses
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(2
|
)
|
||||||||
Net realized investment gains (losses)
|
|
17
|
|
|
36
|
|
|
18
|
|
|
9
|
|
|
5
|
|
|
47
|
|
|
30
|
|
|
29
|
|
||||||||
Net gains (losses) on derivative contracts
|
|
(16
|
)
|
|
(35
|
)
|
|
(10
|
)
|
|
12
|
|
|
25
|
|
|
9
|
|
|
18
|
|
|
(45
|
)
|
||||||||
Net realized gains (losses) on extinguishment of debt
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
||||||||
Other income (loss)
|
|
1
|
|
|
(9
|
)
|
|
141
|
|
|
1
|
|
|
(1
|
)
|
|
2
|
|
|
1
|
|
|
2
|
|
||||||||
Income (loss) on Variable Interest Entities
|
|
16
|
|
|
3
|
|
|
11
|
|
|
7
|
|
|
1
|
|
|
1
|
|
|
2
|
|
|
—
|
|
||||||||
Losses and loss expenses (benefit)
|
|
12
|
|
|
(133
|
)
|
|
37
|
|
|
97
|
|
|
(247
|
)
|
|
33
|
|
|
34
|
|
|
(42
|
)
|
||||||||
Insurance intangible amortization
|
|
36
|
|
|
226
|
|
|
17
|
|
|
15
|
|
|
29
|
|
|
23
|
|
|
26
|
|
|
29
|
|
||||||||
Operating expenses
|
|
25
|
|
|
29
|
|
|
26
|
|
|
23
|
|
|
36
|
|
|
26
|
|
|
28
|
|
|
21
|
|
||||||||
Interest expense
|
|
68
|
|
|
67
|
|
|
67
|
|
|
66
|
|
|
48
|
|
|
62
|
|
|
66
|
|
|
66
|
|
||||||||
Pre-tax income (loss)
|
|
(41
|
)
|
|
(100
|
)
|
|
69
|
|
|
(111
|
)
|
|
308
|
|
|
6
|
|
|
(20
|
)
|
|
(22
|
)
|
||||||||
Net income (loss)
|
|
(43
|
)
|
|
(128
|
)
|
|
66
|
|
|
(110
|
)
|
|
306
|
|
|
4
|
|
|
(22
|
)
|
|
(20
|
)
|
||||||||
Net income (loss) attributable to Common Stockholders
|
|
$
|
(43
|
)
|
|
$
|
(128
|
)
|
|
$
|
66
|
|
|
$
|
(110
|
)
|
|
$
|
306
|
|
|
$
|
4
|
|
|
$
|
(104
|
)
|
|
$
|
(20
|
)
|
Net income (loss) per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||||
Basic
|
|
$
|
(0.94
|
)
|
|
$
|
(2.79
|
)
|
|
$
|
1.44
|
|
|
$
|
(2.40
|
)
|
|
$
|
6.72
|
|
|
$
|
0.09
|
|
|
$
|
(2.27
|
)
|
|
$
|
(0.45
|
)
|
Diluted
|
|
$
|
(0.94
|
)
|
|
$
|
(2.79
|
)
|
|
$
|
1.41
|
|
|
$
|
(2.40
|
)
|
|
$
|
6.70
|
|
|
$
|
0.09
|
|
|
$
|
(2.27
|
)
|
|
$
|
(0.45
|
)
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure — No matters require disclosure.
|
1.
|
The provisions of the By-laws governing notices of meetings of stockholders and directors were amended to address providing notice (and the waiver of notice) by electronic transmission, including electronic mail.
|
2.
|
The provisions of the By-laws regarding proxies, stockholder action by consent in lieu of a meeting, and director action by consent in lieu of a meeting, were also amended to conform to the current provisions of the DGCL regarding those matters as they relate to granting proxies and acting by consent via electronic transmission.
|
3.
|
The provision of the By-laws regarding stockholder addresses was also amended to specifically address stockholder electronic mail addresses.
|
4.
|
In connection with these amendments, the definition of “electronic transmission” in the By-laws was amended to comport with the current definition of that term in the DGCL, and definitions of the terms “electronic mail,” “electronic mail address,” and “document” were added (again tracking the similar definitions of those terms in the DGCL).
|
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)
|
|
2,065,150 (2) (3)
|
|
$20.63 (4)
|
|
1,383,489 (5)
|
Equity compensation plans not approved by security holders
|
|
None
|
|
---
|
|
---
|
|
---
|
Total
|
|
|
|
2,065,150 (2) (3) (4)
|
|
$20.63 (5)
|
|
—
|
(1)
|
Our 2013 Incentive Compensation Plan was approved by the stockholders of AFG on December 18, 2013. The total number of shares of AFG common stock available for issuance under the 2013 Incentive Compensation Plan is 4,000,000.
|
(2)
|
Represents, as of December 31, 2019, 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 702,579 restricted stock units, 16,667 options and 1,345,904 performance stock units which are based on the maximum number of shares potentially payable under the awards. Maximum number of shares potentially payable under performance awards range from 200% to 220% of target.
|
(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 AFG common stock and may vest after the passage of time. Stock options represent the right to acquire an equivalent number of shares of AFG 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 AFG common stock ranging from 0% to 220% 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.
|
(5)
|
The number of securities remaining available for future issuance under compensation plans considering the target number of performance stock units are 2,079,181.
|
(a)
|
Documents filed as a part of this report:
|
1.
|
Financial Statements
|
2.
|
Financial Statement Schedules
|
|
|
|
|
|
Incorporated by Reference
|
|
|
||||
|
|
|
Exhibit Description
|
|
Form
|
|
Filing Date
|
|
Exhibit Number
|
|
Filed Herewith
|
(3) Articles of Incorporation and bylaws:
|
|
|
|
|
|
|
|
|
|||
|
3.1
|
|
|
8-A
|
|
05/01/13
|
|
3.2
|
|
|
|
|
3.2
|
|
|
|
|
|
|
|
|
X
|
|
(4) Instruments defining the rights of security holders, including indentures:
|
|
|
|
|
|
|
|
|
|||
|
4.1
|
|
|
8-A
|
|
05/01/13
|
|
|
|
|
|
|
4.2
|
|
|
8-A
|
|
05/01/13
|
|
4.1
|
|
|
|
|
4.3
|
|
|
8-A
|
|
05/01/13
|
|
4.2
|
|
|
|
|
4.4
|
|
|
|
|
|
|
|
|
|
|
|
4.5
|
|
|
10-K
|
|
03/03/14
|
|
4.5
|
|
|
|
|
4.6
|
|
|
10-K
|
|
03/03/14
|
|
4.6
|
|
|
|
|
4.7
|
|
|
10-K
|
|
03/03/14
|
|
4.7
|
|
|
|
|
4.8
|
|
|
10-K
|
|
03/03/14
|
|
4.8
|
|
|
|
|
4.9
|
|
|
10-K
|
|
03/03/14
|
|
4.9
|
|
|
|
|
4.10
|
|
|
10-K
|
|
03/03/14
|
|
4.10
|
|
|
|
|
4.11
|
|
|
|
|
|
|
|
|
|
|
|
4.12
|
|
|
8-K
|
|
06/08/10
|
|
10.3
|
|
|
|
|
4.13
|
|
|
10-Q
|
|
11/09/15
|
|
4.1
|
|
|
|
|
4.14
|
|
|
8-K
|
|
02/15/18
|
|
4.1
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
||||
|
|
|
Exhibit Description
|
|
Form
|
|
Filing Date
|
|
Exhibit Number
|
|
Filed Herewith
|
|
4.15
|
|
|
8-K
|
|
02/15/18
|
|
4.3
|
|
|
|
|
4.16
|
|
|
8-K
|
|
02/15/18
|
|
4.4
|
|
|
|
|
4.17
|
|
|
10-K
|
|
02/28/19
|
|
4.16
|
|
|
|
(10) Material contract and management compensation plans and arrangements:
|
|
|
|
|
|
|
|
|
|||
|
10.1
|
|
|
8-K
|
|
08/28/14
|
|
99.2
|
|
|
|
|
10.2
|
|
|
DEF 14A
|
|
11/08/13
|
|
A
|
|
|
|
|
10.3
|
|
|
10-Q
|
|
08/11/14
|
|
10.1
|
|
|
|
|
10.4
|
|
|
10-K
|
|
03/03/14
|
|
10.4
|
|
|
|
|
10.5
|
|
|
10-K
|
|
03/03/14
|
|
10.5
|
|
|
|
|
10.6
|
|
|
8-K
|
|
05/03/13
|
|
10.2
|
|
|
|
|
10.7
|
|
|
8-K
|
|
05/03/13
|
|
10.1
|
|
|
|
|
10.8
|
|
|
10-K
|
|
03/03/14
|
|
10.12
|
|
|
|
|
10.9
|
|
|
8-K
|
|
09/27/11
|
|
10.3
|
|
|
|
|
10.10
|
|
|
8-K
|
|
09/27/11
|
|
10.2
|
|
|
|
|
10.11
|
|
|
10-K
|
|
03/16/11
|
|
10.34
|
|
|
|
|
10.12
|
|
|
10-K
|
|
03/16/11
|
|
10.33
|
|
|
|
|
10.13
|
|
|
10-Q
|
|
11/15/10
|
|
10.1
|
|
|
|
|
10.14
|
|
|
10-Q
|
|
05/17/10
|
|
10.26
|
|
|
|
|
10.15
|
|
|
10-K
|
|
04/09/10
|
|
10.23
|
|
|
|
|
10.16
|
|
|
10-K
|
|
02/29/16
|
|
10.27
|
|
|
|
|
10.17
|
|
|
|
|
|
|
|
|
X
|
|
|
|
|
|
Incorporated by Reference
|
|
|
||||
|
|
|
Exhibit Description
|
|
Form
|
|
Filing Date
|
|
Exhibit Number
|
|
Filed Herewith
|
|
10.18
|
|
|
8-K
|
|
03/29/16
|
|
10.3
|
|
|
|
|
10.19
|
|
|
10-Q
|
|
11/03/16
|
|
10.2
|
|
|
|
|
10.20
|
|
|
8-K
|
|
12/13/16
|
|
10.1
|
|
|
|
|
10.21
|
|
|
8-K
|
|
01/06/17
|
|
10.1
|
|
|
|
|
10.22
|
|
|
8-K
|
|
07/20/17
|
|
10.1
|
|
|
|
|
10.23
|
|
|
8-K
|
|
07/20/17
|
|
10.2
|
|
|
|
|
10.24
|
|
|
8-K
|
|
09/26/17
|
|
10.1
|
|
|
|
|
10.25
|
|
|
8-K
|
|
02/15/18
|
|
10.1
|
|
|
|
|
10.26
|
|
|
8-K
|
|
02/15/18
|
|
10.2
|
|
|
|
|
10.27
|
|
|
8-K
|
|
02/15/18
|
|
10.3
|
|
|
|
|
10.28
|
|
|
8-K
|
|
02/15/18
|
|
10.4
|
|
|
|
|
10.29
|
|
|
8-K
|
|
02/15/18
|
|
10.5
|
|
|
|
|
10.30
|
|
|
10-K
|
|
02/28/18
|
|
10.38
|
|
|
|
|
10.31
|
|
|
10-K
|
|
02/28/18
|
|
10.39
|
|
|
|
|
10.32
|
|
|
10-K
|
|
02/28/18
|
|
10.40
|
|
|
|
|
10.33
|
|
|
10-K
|
|
02/28/19
|
|
10.37
|
|
|
|
|
10.34
|
|
|
10-Q
|
|
05/09/18
|
|
10.1
|
|
|
|
|
10.35
|
|
|
10-Q
|
|
05/09/18
|
|
10.2
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
||||
|
|
|
Exhibit Description
|
|
Form
|
|
Filing Date
|
|
Exhibit Number
|
|
Filed Herewith
|
|
10.36
|
|
|
10-Q
|
|
05/09/18
|
|
10.3
|
|
|
|
|
10.37
|
|
|
10-Q
|
|
05/09/18
|
|
10.4
|
|
|
|
|
10.38
|
|
|
10-Q
|
|
05/09/18
|
|
10.5
|
|
|
|
|
10.39
|
|
|
8-K
|
|
06/25/18
|
|
10.1
|
|
|
|
|
10.40
|
|
|
10-Q
|
|
05/09/19
|
|
10.1
|
|
|
|
|
10.41
|
|
|
10-Q
|
|
05/09/19
|
|
10.2
|
|
|
|
|
10.42
|
|
|
10-Q
|
|
05/09/19
|
|
10.5
|
|
|
|
|
10.43
|
|
|
10-Q
|
|
08/08/19
|
|
10.1
|
|
|
|
|
10.44
|
|
|
10-Q
|
|
08/08/19
|
|
10.2
|
|
|
|
|
10.45
|
|
|
|
|
|
|
|
|
X
|
|
|
10.46
|
|
|
|
|
|
|
|
|
X
|
|
(99) Additional exhibits
|
|
|
|
|
|
|
|
|
|||
|
99.1
|
|
|
10-Q
|
|
11/10/14
|
|
99.1
|
|
|
|
|
99.2
|
|
|
10-K
|
|
03/03/14
|
|
99.3
|
|
|
|
|
99.3
|
|
|
10-K
|
|
03/16/11
|
|
99.2
|
|
|
|
|
99.4
|
|
|
10-Q
|
|
08/09/10
|
|
99.1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other exhibits, filed or furnished, as indicated:
|
|
|
|
|
|
|
|
|
|||
|
21.1
|
|
|
|
|
|
|
|
|
X
|
|
|
23.1
|
|
|
|
|
|
|
|
|
X
|
|
|
24.1
|
|
|
|
|
|
|
|
|
X
|
|
|
31.1
|
|
|
|
|
|
|
|
|
X
|
|
|
31.2
|
|
|
|
|
|
|
|
|
X
|
|
|
32.1++
|
|
|
|
|
|
|
|
|
X
|
|
|
101.INS
|
|
XBRL Instance Document.
|
|
|
|
|
|
|
|
|
|
101.SCH
|
|
XBRL Taxonomy Extension Schema Document.
|
|
|
|
|
|
|
|
|
|
101.CAL
|
|
XBRL Taxonomy Extension Calculation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incorporated by Reference
|
|
|
||||
|
|
|
Exhibit Description
|
|
Form
|
|
Filing Date
|
|
Exhibit Number
|
|
Filed Herewith
|
|
101.LAB
|
|
XBRL Taxonomy Extension Label Linkbase Document.
|
|
|
|
|
|
|
|
|
|
101.PRE
|
|
XBRL Taxonomy Extension Presentation Linkbase Document.
|
|
|
|
|
|
|
|
|
|
101.DEF
|
|
XBRL Taxonomy Extension Definition Linkbase Document.
|
|
|
|
|
|
|
|
|
|
104
|
|
Cover Page Interactive Data File - The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags or embedded within the Inline XBRL document
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
++ Furnished herewith.
|
|
|
|
|
|
|
|
|
Type of Investment
($ in millions)
|
|
Cost
|
|
Estimated
Fair Value
|
|
Amount at Which
Shown in the
Balance Sheet
|
||||||
Municipal obligations
|
|
$
|
194
|
|
|
$
|
215
|
|
|
$
|
215
|
|
Corporate obligations
|
|
1,396
|
|
|
1,430
|
|
|
1,430
|
|
|||
Foreign obligations
|
|
44
|
|
|
44
|
|
|
44
|
|
|||
U.S. government obligations
|
|
157
|
|
|
156
|
|
|
156
|
|
|||
Residential mortgage-backed securities
|
|
200
|
|
|
248
|
|
|
248
|
|
|||
Commercial mortgage-backed securities
|
|
49
|
|
|
50
|
|
|
50
|
|
|||
Collateralized debt obligations
|
|
147
|
|
|
146
|
|
|
146
|
|
|||
Other asset-backed securities
|
|
263
|
|
|
287
|
|
|
287
|
|
|||
Short-term
|
|
737
|
|
|
737
|
|
|
737
|
|
|||
Other
|
|
388
|
|
|
493
|
|
|
478
|
|
|||
Total
|
|
$
|
3,575
|
|
|
$
|
3,807
|
|
|
$
|
3,792
|
|
($ in millions, except share data) December 31,
|
2019
|
|
2018
|
||||
Assets:
|
|
|
|
||||
Fixed income securities, at fair value (amortized cost: 2019—$71 and 2018—$151)
|
$
|
70
|
|
|
$
|
148
|
|
Short-term investments, at cost (approximates fair value)
|
318
|
|
|
193
|
|
||
Other investments
|
46
|
|
|
40
|
|
||
Total investments
|
434
|
|
|
381
|
|
||
Cash
|
9
|
|
|
15
|
|
||
Investment in subsidiaries
|
993
|
|
|
1,148
|
|
||
Investment income due and accrued
|
1
|
|
|
1
|
|
||
Current taxes receivable (1)
|
30
|
|
|
44
|
|
||
Other assets
|
11
|
|
|
3
|
|
||
Total assets
|
$
|
1,478
|
|
|
$
|
1,593
|
|
Liabilities and Stockholders' Equity:
|
|
|
|
||||
Liabilities:
|
|
|
|
||||
Accounts payable and other liabilities
|
$
|
2
|
|
|
$
|
1
|
|
Total liabilities
|
2
|
|
|
1
|
|
||
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: 45,571,743 and 45,365,170
|
—
|
|
|
—
|
|
||
Additional paid-in capital
|
232
|
|
|
219
|
|
||
Accumulated other comprehensive income (loss)
|
42
|
|
|
(49
|
)
|
||
Retained earnings
|
1,203
|
|
|
1,421
|
|
||
Treasury stock, shares at cost: 16,343 and 28,892
|
—
|
|
|
—
|
|
||
Total Ambac Financial Group, Inc. stockholders’ equity
|
1,477
|
|
|
1,592
|
|
||
Total liabilities and stockholders’ equity
|
$
|
1,478
|
|
|
$
|
1,593
|
|
(1)
|
As of December 31, 2019, and December 31, 2018, $28 and $44, respectively, relate to receivables from the Registrant's wholly-owned subsidiary, Ambac Assurance Corporation, pursuant to the intercompany tax sharing agreement, with the remainder being state income taxes.
|
($ in millions) Year Ended December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Revenues:
|
|
|
|
|
|
||||||
Investment income
|
$
|
19
|
|
|
$
|
28
|
|
|
$
|
24
|
|
Other than temporary impairments
|
(2
|
)
|
|
(1
|
)
|
|
(1
|
)
|
|||
Net realized gains (losses)
|
1
|
|
|
(1
|
)
|
|
(7
|
)
|
|||
Total revenues
|
18
|
|
|
26
|
|
|
17
|
|
|||
Expenses:
|
|
|
|
|
|
||||||
Operating expenses
|
16
|
|
|
8
|
|
|
4
|
|
|||
Total expenses
|
16
|
|
|
8
|
|
|
4
|
|
|||
Income (loss) before income taxes and equity in undistributed net loss of subsidiaries
|
2
|
|
|
17
|
|
|
13
|
|
|||
Federal income tax provision (benefit)
|
(5
|
)
|
|
(11
|
)
|
|
(29
|
)
|
|||
Income before equity in undistributed net income (loss) of subsidiaries
|
7
|
|
|
28
|
|
|
43
|
|
|||
Equity in undistributed net income (loss) of subsidiaries
|
(223
|
)
|
|
157
|
|
|
(371
|
)
|
|||
Net income (loss)
|
$
|
(216
|
)
|
|
$
|
186
|
|
|
$
|
(329
|
)
|
|
|
|
|
|
|
||||||
Other comprehensive income (loss), after tax:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(216
|
)
|
|
$
|
186
|
|
|
$
|
(329
|
)
|
Unrealized gains (losses) on securities, net of income tax provision (benefit) of $(8), $2 and $0
|
65
|
|
|
55
|
|
|
(82
|
)
|
|||
Gains (losses) on foreign currency translation, net of income tax provision (benefit) of $0, $0 and $0
|
26
|
|
|
(48
|
)
|
|
74
|
|
|||
Credit risk changes of fair value option liabilities, net of income tax provision (benefit) of $0, $0 and $0
|
—
|
|
|
1
|
|
|
—
|
|
|||
Changes to postretirement benefit, net of income tax provision (benefit) of $0, $0 and $0
|
(1
|
)
|
|
(2
|
)
|
|
1
|
|
|||
Total other comprehensive income (loss)
|
91
|
|
|
6
|
|
|
(7
|
)
|
|||
Total comprehensive income (loss) attributable to Ambac Financial Group, Inc.
|
$
|
(125
|
)
|
|
$
|
192
|
|
|
$
|
(335
|
)
|
($ in millions)
|
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, 2019
|
$
|
1,592
|
|
|
$
|
1,421
|
|
|
$
|
(49
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
219
|
|
|
$
|
—
|
|
Total comprehensive income (loss)
|
(125
|
)
|
|
(216
|
)
|
|
91
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|||||||
Cost of shares (acquired) issued under equity plan
|
(3
|
)
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Balance at December 31, 2019
|
$
|
1,477
|
|
|
$
|
1,203
|
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
232
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance at Balance at January 1, 2018
|
$
|
1,381
|
|
|
$
|
1,234
|
|
|
$
|
(52
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
—
|
|
Total comprehensive income (loss)
|
192
|
|
|
186
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Adjustment to initially apply ASU 2016-01
|
—
|
|
|
3
|
|
|
(3
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|||||||
Cost of shares (acquired) issued under equity plan
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Issuance of warrants
|
8
|
|
|
|
|
|
|
|
|
|
|
8
|
|
|
|
||||||||||||
Balance at December 31, 2018
|
$
|
1,592
|
|
|
$
|
1,421
|
|
|
$
|
(49
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
219
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||||||||||
Balance at January 1, 2017
|
$
|
1,714
|
|
|
$
|
1,558
|
|
|
$
|
(39
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
195
|
|
|
$
|
—
|
|
Total comprehensive income (loss)
|
(335
|
)
|
|
(329
|
)
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Adjustment to initially apply ASU 2018-02
|
—
|
|
|
7
|
|
|
(7
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Stock-based compensation
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
—
|
|
|||||||
Cost of shares (acquired) issued under equity plan
|
(2
|
)
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|||||||
Balance at December 31, 2017
|
$
|
1,381
|
|
|
$
|
1,234
|
|
|
$
|
(52
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
200
|
|
|
$
|
—
|
|
($ in millions) Year Ended December 31,
|
2019
|
|
2018
|
|
2017
|
||||||
Cash flows from operating activities:
|
|
|
|
|
|
||||||
Net income (loss)
|
$
|
(216
|
)
|
|
$
|
186
|
|
|
$
|
(329
|
)
|
Adjustments to reconcile net income loss to net cash used in operating activities:
|
|
|
|
|
|
||||||
Equity in undistributed net (income) loss of subsidiaries
|
223
|
|
|
(157
|
)
|
|
371
|
|
|||
Amortization of bond premium and discount
|
(6
|
)
|
|
(7
|
)
|
|
(17
|
)
|
|||
Other-than-temporary impairment charges
|
2
|
|
|
1
|
|
|
1
|
|
|||
Net realized gains (losses)
|
(1
|
)
|
|
1
|
|
|
7
|
|
|||
Increase (decrease) in current income taxes payable
|
15
|
|
|
(15
|
)
|
|
(1
|
)
|
|||
Share-based compensation
|
12
|
|
|
12
|
|
|
4
|
|
|||
(Increase) decrease in other assets
|
(8
|
)
|
|
12
|
|
|
(11
|
)
|
|||
Other, net
|
(6
|
)
|
|
—
|
|
|
(10
|
)
|
|||
Net cash provided by (used in) operating activities
|
16
|
|
|
32
|
|
|
16
|
|
|||
Cash flows from investing activities:
|
|
|
|
|
|
||||||
Proceeds from matured bonds
|
86
|
|
|
230
|
|
|
187
|
|
|||
Purchases of bonds
|
(2
|
)
|
|
(137
|
)
|
|
(196
|
)
|
|||
Change in short-term investments
|
(125
|
)
|
|
(123
|
)
|
|
(3
|
)
|
|||
Change in other investments
|
—
|
|
|
25
|
|
|
(35
|
)
|
|||
Sale of auction market preferred shares of Ambac Assurance
|
19
|
|
|
—
|
|
|
—
|
|
|||
Purchase of auction market preferred shares of Ambac Assurance
|
—
|
|
|
(11
|
)
|
|
—
|
|
|||
Other, net
|
—
|
|
|
(5
|
)
|
|
3
|
|
|||
Net cash provided by (used in) investing activities
|
(22
|
)
|
|
(21
|
)
|
|
(44
|
)
|
|||
Cash flows from financing activities:
|
|
|
|
|
|
||||||
Net cash flow
|
(6
|
)
|
|
11
|
|
|
(28
|
)
|
|||
Cash at beginning of period
|
15
|
|
|
4
|
|
|
32
|
|
|||
Cash at end of period
|
$
|
9
|
|
|
$
|
15
|
|
|
$
|
4
|
|
|
|
|
|
|
|
||||||
Supplemental disclosure of cash flow information:
|
|
|
|
|
|
||||||
Cash paid during the period for:
|
|
|
|
|
|
||||||
Income taxes
|
$
|
1
|
|
|
$
|
4
|
|
|
$
|
1
|
|
Non-cash financing activity:
|
|
|
|
|
|
||||||
Issuance of warrants in connection with purchase of auction market preferred shares of Ambac Assurance
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Insurance Premiums Written
($ in millions) |
Gross
Amount
|
|
Ceded to Other
Companies
|
|
Assumed from
Other
Companies
|
|
Net
Amount
|
|
Percentage of
Amount
Assumed to
Net
|
||||||||
Year Ended December 31, 2019
|
$
|
(28
|
)
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
(60
|
)
|
|
—%
|
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2018
|
(24
|
)
|
|
17
|
|
|
$
|
—
|
|
|
(41
|
)
|
|
—%
|
|||
|
|
|
|
|
|
|
|
|
|
||||||||
Year Ended December 31, 2017
|
(14
|
)
|
|
(2
|
)
|
|
—
|
|
|
(12
|
)
|
|
—%
|
|
|
AMBAC FINANCIAL GROUP, INC.
|
|
|
|
|
|
Dated:
|
March 2, 2020
|
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
|
|
March 2, 2020
|
Jeffrey S. Stein
|
|
|
|
|
|
|
|
|
|
/S/ CLAUDE LEBLANC
|
|
President, Chief Executive Officer and Director
|
|
March 2, 2020
|
Claude LeBlanc
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/S/ DAVID TRICK
|
|
Executive Vice President and Chief Financial Officer
|
|
March 2, 2020
|
David Trick
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/S/ ROBERT B. EISMAN
|
|
Senior Managing Director and Chief Accounting Officer
|
|
March 2, 2020
|
Robert B. Eisman
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/S/ ALEXANDER D. GREENE*
|
|
Director
|
|
March 2, 2020
|
Alexander D. Greene
|
|
|
|
|
|
|
|
|
|
/S/ IAN D. HAFT*
|
|
Director
|
|
March 2, 2020
|
Ian D. Haft
|
|
|
|
|
|
|
|
|
|
/S/ DAVID L. HERZOG*
|
|
Director
|
|
March 2, 2020
|
David L. Herzog
|
|
|
|
|
|
|
|
|
|
/S/ C. JAMES PRIEUR*
|
|
Director
|
|
March 2, 2020
|
C. James Prieur
|
|
|
|
|
|
|
|
|
|
/S/ JOAN LAMM-TENNANT*
|
|
Director
|
|
March 2, 2020
|
Joan Lamm-Tennant
|
|
|
|
|
|
|
|
|
|
/S/ STEPHEN M. KSENAK
|
|
|
|
|
*By: Stephen M. Ksenak
|
|
Attorney-in-fact
|
|
March 2, 2020
|
(a)
|
Special meetings of stockholders for any purpose or purposes may be called only by (i) the Board or the Chairman of the Board, the Chief Executive Officer of the Corporation, the President of the Corporation, or (ii) the Secretary of the Corporation (the "Secretary") upon the written request or requests submitted in accordance with, and in the form and containing the information required by, this Section 2.03 (a "Proper Special Meeting Request"), by one or more holders of record of shares of common stock of the Corporation ("Shares") representing, collectively, 25% or more of the voting power of the then issued and outstanding Shares (the "Requisite Percentage"). Any such meeting shall be held on a date, place, if any, and at a time as shall be designated by the Board.
|
(b)
|
Holders of record of Shares representing, collectively, the Requisite Percentage shall have the right to request that the Secretary call a special meeting of stockholders for the election of Directors or Other Business only if the item or items of business to be transacted at the requested special meeting are a proper subject for stockholder action at a special meeting of stockholders under applicable law and only upon compliance by the requesting stockholders with the provisions of this Section 2.03. In the case of a special meeting of stockholders called by the Secretary following receipt of a written request or requests from holders of record holding, collectively, the
|
(c)
|
To be in proper form and constitute a Proper Special Meeting Request, a special meeting request from any stockholder or stockholders pursuant to Section 2(a)(ii) shall be in writing, shall be submitted by a holder of record of Shares, and shall set forth and describe in fair, accurate, and material detail:
|
(i)
|
the purpose or purposes for which the meeting is to be called; and
|
(ii)
|
(A) all Stockholder Information as to (x) each stockholder of record making a special meeting request pursuant to Section 2.03(a)(ii), (y) the Beneficial Owner or Beneficial Owners, if different, on whose behalf such request is given, and (z) any affiliates or associates (each within the meaning of Rule 12b-2 under the Exchange Act, or its successor provision) of such stockholder(s) of record or Beneficial Owner(s) (in each case, a "Requesting Person");
|
(d)
|
In the case of a special meeting of stockholders called pursuant to Section 2.03(a)(ii), each Requesting Person shall further update and supplement such Requesting Person's special meeting request(s) so that:
|
(i)
|
the information provided or required to be provided in such special meeting request(s) pursuant to Section 2.03(c) shall be updated and supplemented to be true and correct as of:
|
(A)
|
the record date for the determination of stockholders entitled to notice of the special meeting;
|
(B)
|
if such record date is more than 15 Business Days before the special meeting, as of the date that is 10 Business Days before the special meeting; and
|
(C)
|
as of the date that is 10 Business Days before the date scheduled for the convening of any postponed special meeting or the reconvening of any adjourned special meeting.
|
(ii)
|
The time that such updated and supplemental information must be delivered to, or mailed to and received by, the Secretary at the Corporation's principal executive office is as follows:
|
(A)
|
in the case of information that is required to be updated and supplemented pursuant to Section 2.03(d)(i)(A) to be true and correct as of the record date for the determination of stockholders entitled to notice of the special meeting, not later than the later of (x) 5 Business Days after such record date or (y) 5 Business Days after the Public Announcement of such record date;
|
(B)
|
in the case of information that is required to be updated and supplemented pursuant to Section 2.03(d)(i)(B) to be true and correct as of the date that is 10 Business Days before the special meeting, not later than 8 Business Days before the special meeting; and
|
(C)
|
in the case of information that is required to be updated and supplemented pursuant to Section 2.03(d)(i)(C) to be true and correct as of the date that is 10 Business Days before the date scheduled for the convening of any postponed special meeting or the reconvening of any adjourned special meeting, not later than 8 Business Days before the date scheduled for such convening or reconvening of the special meeting; provided, however, if it is not practicable to provide such updated and supplemental information not later than 8 Business Days before the date scheduled for such convening or reconvening, on the first practicable date before any such convening or reconvening.
|
(e)
|
The Secretary shall not accept, and shall consider ineffective, a special meeting request from a stockholder (i) that does not comply with this Section 2.03, (ii) that relates to an item of business to be transacted at the requested special meeting that is not a proper subject for stockholder action under applicable law, or (iii) if the business proposed to be conducted at the requested special meeting as set forth in such special meeting request is identical to or substantially similar to an item of business that will be submitted for stockholder approval or consideration at any meeting of stockholders to be held on or before the 90th day after the first date by which Proper Special Meeting Request(s) by holders of record of Shares representing, collectively, the Requisite Percentage have been received by the Secretary at the Corporation's principal executive office in accordance with this Section 2.03. The Board shall have the power, if the facts warrant, to determine whether or not a written request or requests have or have not been submitted in accordance with, and in the form and containing the information required by, this Section 2.03, and if such written request or requests have not been submitted in accordance with, and in the form and containing the information required by, this Section 2.03, to determine that such written request or requests do not constitute Proper Special Meeting Requests as required by this Section 2.03. In addition to the requirements of this Section 2.03, each Requesting Person shall comply with all requirements of applicable law, including all requirements of the Exchange Act, with respect to any special meeting request.
|
(f)
|
Anything in Section 2.14 to the contrary notwithstanding, in the case of a special meeting of stockholders called pursuant to Section 2.03(a)(ii), if a purpose of such special meeting is to elect Directors to the Board, and a Requesting Person has included in such Requesting Person's Proper Special Meeting Request the name of each Proposed Nominee the Requesting Person proposes to nominate at the requested special meeting for election to the Board, together with all other information required by Section 2.03(c), and so long as the Requesting Person has otherwise complied with this Section 2.03, then the Requesting Person's Proper Special Meeting Request shall be deemed to be, and shall substitute for, the notice contemplated by Section 2.14(b) and such Requesting Person shall be deemed to have given timely notice of such nominations in the proper form for purposes of Section 2.14(b) and otherwise to have complied with the notice procedures set forth in Section 2.14(b)(ii), so long as such Requesting Person provides any updates or supplements to such Proper Special Meeting Request at such times and in the forms required by Section 2.03(d).
|
(g)
|
Except as expressly provided in, and in accordance with, this Section 2.03, stockholders shall not be permitted to call or cause any officer of the Corporation to call a special meeting of stockholders for the election of Directors or any Other Business. As provided in Section 2.05, the election of Directors and any Other Business may be
|
(h)
|
A stockholder may revoke a special meeting request by submitting a written revocation of a special meeting request delivered to, or mailed to and received by, the Secretary at the Corporation's principal executive office at any time before the special meeting (a "Demand Revocation"). The Board shall have the sole discretion to determine whether or not to proceed with the special meeting if after the Secretary's receipt of Proper Special Meeting Request(s) from the holders of record holding, collectively, the Requisite Percentage (i) any Demand Revocation(s) are delivered to or received by the Secretary, or (ii) at any time before the record date for the determination of stockholders entitled to vote at the special meeting, a Requesting Person updates or supplements such Requesting Person's special meeting request as required by Section 2.03(d), which updated or supplemented request evidences or indicates a reduction in the voting power of the Shares held of record by such Requesting Person, and as a result of such Demand Revocation(s), update, or supplementation, there no longer are unrevoked Proper Special Meeting Requests by holders of record holding, collectively, the Requisite Percentage as required by this Section 2.03.
|
(a)
|
Meetings of Stockholders. In order that the Corporation may determine the stockholders entitled to notice of any meeting of stockholders or any adjournment thereof, the Board may fix, in advance, a record date, which shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date shall not be more than 60 days nor less than 10 days before the date of such meeting. If the Board so fixes a record date for determining the stockholders entitled to notice of any meeting of stockholders, such date shall also be the record date for determining the stockholders entitled to vote at such meeting, unless the Board determines, at the time it fixes the record date for determining the stockholders entitled to notice of such meeting, that a later date on or before the date of the meeting shall be the record date for determining the stockholders entitled to vote at such meeting. If no record date is fixed by the Board, the record date for determining stockholders entitled to notice of and to vote at any meeting of stockholders or any adjournment thereof shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of such meeting; provided, however, that the Board may fix a new record date for determination of stockholders entitled to vote at the adjourned meeting, and in such case shall also fix as the record date for stockholders entitled to receive notice of such adjourned meeting the same or an earlier date as that fixed for determining the stockholders entitled to vote at such adjourned meeting in accordance with the foregoing provisions of this subsection (a) of this Section 2.04.
|
(b)
|
Dividends and Distributions. In order that the Corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board may fix, in advance, a record date. Such record date shall not precede the date upon which the resolution fixing such record date is adopted, and shall not be more than 60 days prior to such action. If no record date is fixed,
|
(a)
|
General. Except as otherwise provided by law, a notice of each annual or special meeting of stockholders in the form of a writing or electronic transmission, stating the place, if any, date, and time of such meeting, as well as the record date for determining stockholders entitled to vote at the meeting (if such record date is different from the record date for determining stockholders entitled to notice of the meeting), and the means of remote communication, if any, by which stockholders and proxyholders may be deemed to be present in person and vote at such meeting, shall be given to each stockholder entitled to notice of such meeting, not less than 10 days nor more than 60 days before the date of the meeting. Notice of special meetings of stockholders shall also include the purpose or purposes for which the meeting is called. Business transacted at any special meeting of stockholders shall be limited to the purpose or purposes stated in the notice. The Board, acting by resolution, may postpone and reschedule any previously scheduled annual or special meeting of stockholders.
|
(b)
|
Any notice to stockholders given by the Corporation under this Section 2.05 or any other provision of these By-laws, the certificate of incorporation, or applicable Delaware law may be given in writing directed to the stockholder’s mailing address (or by electronic transmission directed to the stockholder’s electronic mail address, as applicable) as it appears on the records of the Corporation and shall be deemed given (1) if mailed, when the notice is deposited in the U.S. mail, postage prepaid, (2) if delivered by courier service to the stockholder’s mailing address, the earlier of when the notice is received or left at such stockholder’s address or (3) if given by electronic mail, when directed to such stockholder’s electronic mail address unless the stockholder has notified the corporation in writing or by electronic transmission of an objection to receiving notice by electronic mail. A notice by electronic mail must include a prominent legend that the communication is an important notice regarding the corporation. In addition, any notice to stockholders given by the Corporation under this Section 2.05 or any other provision of these By-laws, the certificate of incorporation, or applicable Delaware law shall also be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given, and any such notice shall be deemed given: (1) if by facsimile telecommunication, when directed to a facsimile telecommunication number at which the stockholder has consented to receive notice; (2) if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and (3) if by any other form of electronic transmission, when directed to the stockholder. Any consent by a stockholder to receive notice in a form of electronic transmission shall be revocable by the stockholder by written notice or electronic transmission to the Corporation. Notwithstanding the foregoing, the Corporation shall not give notice to a stockholder by an electronic transmission (including by electronic mail) from and after the time that (1) the Corporation is unable to deliver by such electronic transmission two consecutive notices given by the Corporation and (2) such inability becomes known to the Secretary or an Assistant Secretary of the Corporation or to the transfer agent, or other person responsible for the giving of notice, provided, however, that the inadvertent failure to discover such inability shall not invalidate any meeting or other action. An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Corporation that notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.
|
(c)
|
Adjournments. When any meeting is convened, the presiding officer of the meeting may adjourn or recess the meeting if (i) no quorum is present for the transaction of business, (ii) the Board determines that adjournment is necessary or appropriate to enable the stockholders to consider fully information which the Board determines has not been made sufficiently or timely available to stockholders, or (iii) the Board or presiding officer determines that adjournment is otherwise in the best interests of the Corporation. Whenever a meeting of stockholders, annual or special, is adjourned to another date, time or place, notice need not be given of the adjourned meeting if the date, time and place thereof are announced at the meeting at which the adjournment is taken. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder entitled to vote thereat. At the meeting following the recess or adjournment of the original meeting, any business may be transacted which might have been transacted at such original meeting.
|
(a)
|
Annual Meetings of Stockholders.
|
(i)
|
Nominations of persons for election to the Board and the proposal of business to be considered by the stockholders may be made for consideration and voting at an annual meeting of stockholders only (A) pursuant to the Corporation's notice of meeting (or any supplement thereto), (B) by or at the direction of the Board, or (C) by any stockholder (x) who was a stockholder of record (and, with respect to any Beneficial Owner, if different, on whose behalf such business is proposed or such nomination or
|
(ii)
|
For nominations or other business to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder (A) must have given timely notice thereof in writing and in proper form to the Secretary at the Corporation's principal executive office, and (B) must provide any updates or supplements to such notice at such times and in the forms required by this Section 2.14. To be timely, a stockholder's notice relating to an annual meeting shall be delivered to, or mailed to and received by, the Secretary at the Corporation's principal executive office not later than the close of business on the 60th day, and not earlier than the close of business on the 90th day, before the date of the one-year anniversary of the immediately preceding year's annual meeting; provided, however, that if the date of the annual meeting is more than 30 days before, or more than 30 days after, such anniversary date, notice by the stockholder must be so delivered, or mailed and received, not earlier than the close of business on the 90th day before such annual meeting and not later than the close of business on the later of (x) the 60th day before such annual meeting or (y) the 15th day following the day on which Public Announcement of the date of such meeting is first made by the Corporation. In no event shall the Public Announcement of an adjournment or postponement of an annual meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder's notice as described in this Section 2.14(a)(ii).
|
(iii)
|
To be in proper form for purposes of this Section 2.14, a stockholder's notice to the Secretary (whether pursuant to this Section 2.14(a) or Section 2.14(b)) must be submitted by a holder of record of Shares and set forth and describe in fair, accurate, and material detail:
|
(A)
|
all Stockholder Information as to each Proposing Person;
|
(B)
|
all Disclosable Interests as to each Proposing Person;
|
(C)
|
all Proposed Nomination Information as to each Proposed Nominee, if the notice pertains to a Proposed Nominee;
|
(D)
|
all Proposed Business Information, if the notice relates to any Other Business;
|
(E)
|
a Holder of Record Representation; and
|
(F)
|
a Proxy Solicitation Representation by or on behalf of each Proposing Person.
|
(iv)
|
Notwithstanding anything in the second sentence of Section 2.14(a)(ii) to the contrary, if (A) the number of Directors to be elected to the Board at an annual meeting is increased after the Corporation has made Public Announcement of the number of Directors to be elected at such meeting or the size of the Board is increased, and (B) there is no Public Announcement by the Corporation naming all persons the Board nominated for Director or specifying the size of the increased Board at least 75 days before the one-year anniversary of the preceding year's annual meeting, then a stockholder's notice required by this
|
(v)
|
Only such persons who are nominated in accordance with the procedures and other provisions set forth in Section 2.14(a) (expressly including those persons nominated by or at the direction of the Board) shall be eligible to be elected at an annual meeting of stockholders to serve as Directors. Only such business shall be conducted at an annual meeting of stockholders as shall have been brought before the meeting in accordance with the procedures and other provisions set forth or referred to in Section 2.14(a). Except as otherwise provided by applicable law, the presiding officer of an annual meeting of stockholders shall have the power and duty (A) if the facts warrant, to determine that a nomination or any business proposed to be brought before the annual meeting was not made or was not proposed, as the case may be, in accordance with the procedures set forth in this Section 2.14(a), and (B) if any proposed nomination or business was not made or was not proposed, as the case may be, in compliance with this Section 2.14(a), to declare that such nomination shall be disregarded or that such proposed business shall not be transacted.
|
(b)
|
Additional Nominations In Connection With Special Meetings Of Stockholders At Which Directors Are To Be Elected.
|
(i)
|
Nominations of persons for election to the Board may be made for consideration and voting at a special meeting of stockholders at which Directors are to be elected pursuant to the Corporation's notice of meeting only (A) by or at the direction of the Board or (B) if a purpose for such meeting as stated in the Corporation's notice for such meeting is the election of one or more Directors, by any stockholder (x) who was a stockholder of record (and, with respect to any Beneficial Owner, if different, on whose behalf such nomination or nominations are made, only if such Beneficial Owner was the Beneficial Owner of Shares) both at the time the notice provided for in Section 2.14(b)(ii) is delivered to the Secretary and on the record date for the determination of stockholders entitled to vote at the special meeting; (y) who is entitled to vote at the meeting in such election; and (z) who complies with the notice procedures set forth in Section 2.14(b)(ii); provided, however, that a stockholder may nominate persons for election at a special meeting of stockholders only to such position(s) as specified in the Corporation's notice of the meeting.
|
(ii)
|
If a special meeting of stockholders has been called in accordance with Section 2.03 for the purpose of electing one or more Directors to the Board, then for nominations of Proposed Nominees for election to the Board to be properly brought before such special meeting by a stockholder pursuant to Section 2.14(b)(i)(B), the stockholder (A) must have given timely notice thereof in writing and in the proper form to the Secretary at the Corporation's principal executive office, and (B) must provide any updates or supplements to such notice at such times and in the forms required by this Section 2.14. To be timely, a stockholder's notice relating to a special meeting of stockholders shall be delivered to, or mailed to and received by, the Secretary at the Corporation's principal executive office not earlier than the close of business on the 90th day before such special meeting and not later than the close of business on the later of (x) the 60th day before such special meeting or (y) the 15th day following the day on which Public Announcement is first made by the Corporation of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the Public Announcement of an adjournment or postponement of a special meeting of stockholders commence a new time period (or extend any time period) for the giving of a stockholder's notice as described in this Section 2.14(b)(ii). To be in proper form for purposes of this Section 2.14(b), such notice shall set forth the information required by clauses (A), (B), (C), (E), and (F) of Section 2.14(a)(iii). For the avoidance of doubt, notice of Proposed Nominees for election to the Board included in a stockholder request for a special meeting of stockholders submitted in accordance with Sections 2.03(a)(ii) and 2.03(c) shall be deemed timely and in proper form as set forth in Section 2.03(f).
|
(iii)
|
Only such persons who are nominated in accordance with the procedures and other provisions set forth in this Section 2.14(b) (expressly including those persons nominated by or at the direction of the Board) shall be eligible to be elected at a special meeting of stockholders to serve as Directors. Except as otherwise provided by applicable law, the presiding officer of a special meeting of stockholders shall have the power and duty (A) if the facts warrant, to determine that a nomination proposed to be made at the special meeting was not made in accordance with the procedures set forth in this Section 2.14(b), and (B) if any proposed nomination was not made in compliance with this Section 2.14(b), to declare that such nomination shall be disregarded.
|
(c)
|
General.
|
(i)
|
A stockholder providing notice of nominations of Proposed Nominees for election to the Board at an annual or special meeting of stockholders or notice of business proposed to be brought before an annual meeting of stockholders shall further update and supplement such notice so that all the information required to be provided in such notice pursuant to Section 2.14(a)(iii) (including, in the case of notice of nominations of Proposed Nominees in connection with a special meeting of stockholders, the information required to be provided in such notice pursuant to Section 2.14(b)(i)) shall be true and correct as of:
|
(A)
|
the record date for the determination of stockholders entitled to notice of the meeting;
|
(B)
|
if such record date is more than 15 Business Days before the meeting, then as of the date that is 10 Business Days before the meeting; and
|
(C)
|
as of the date that is 10 Business Days before the date scheduled for the convening of any postponed meeting or the reconvening of any adjourned meeting.
|
(ii)
|
The time that such updated and supplemental information must be delivered to, or mailed to and received by, the Secretary at the Corporation's principal executive office is as follows:
|
(A)
|
in the case of information that is required to be updated and supplemented pursuant to Section 2.14(c)(i)(A) to be true and correct as of the record date for the determination of stockholders entitled to notice of the meeting, not later than the later of (x) 5 Business Days after such record date or (y) 5 Business Days after the Public Announcement of such record date; and
|
(B)
|
in the case of information that is required to be updated and supplemented pursuant to Section 2.14(c)(i)(B) to be true and correct as of the date that is 10 Business Days before the meeting, not later than 8 Business Days before the meeting; and
|
(C)
|
in the case of information that is required to be updated and supplemented pursuant to Section 2.14(c)(i)(C) to be true and correct as of the date that is 10 Business Days before the date scheduled for the convening of any postponed meeting or the reconvening of any adjourned meeting, not later than 8 Business Days before the date scheduled for such convening or reconvening of the meeting; provided, however, if it is not practicable to provide such updated and supplemental information not later than 8 Business Days before the date scheduled for such convening or reconvening, on the first practicable date before any such convening or reconvening.
|
(iii)
|
The Corporation may require any Proposed Nominee to furnish such other information as it may reasonably require to determine (A) the eligibility of such Proposed Nominee to serve as a Director, and (B) whether such Proposed Nominee qualifies as an "independent director" or "audit committee financial expert" under applicable law, securities exchange rule or regulation, or any publicly disclosed corporate governance guideline or committee charter of the Corporation.
|
(iv)
|
Notwithstanding the foregoing provisions of this Section 2.14, unless otherwise required by applicable law, if the stockholder (or a qualified representative of the stockholder) does not appear at the annual
|
(v)
|
Section 2.14(a) is expressly intended to apply to any business proposed to be brought before an annual meeting of stockholders other than any proposal made pursuant to Rule 14a-8 under the Exchange Act. Nothing in this Section 2.14 shall be deemed to (A) affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 (or any successor thereto) promulgated under the Exchange Act, (B) confer upon any stockholder a right to have a nominee or any proposed business included in the Corporation's proxy statement, or (C) affect the rights of the holders of any class or series of shares of capital stock of the Corporation having a preference over the common stock of the Corporation, as to dividends or upon liquidation, to nominate and elect Directors pursuant to and to the extent provided in any applicable provisions of the Certificate of Incorporation.
|
(d)
|
Definitions. As used in these By-laws, the following capitalized terms shall have the following meanings:
|
(i)
|
A Person shall be deemed to be the "Beneficial Owner" of, to "Beneficially Own" or to have "Beneficial Ownership" of any Referenced Securities of the Corporation (A) that such Person or any of such Person's affiliates or associates beneficially owns, directly or indirectly, for purposes of Section 13(d) of the Exchange Act and Rule 13d-3 thereunder (or any comparable or successor law or regulation); (B) that such Person or any of such Person's affiliates or associates has (x) the right to acquire (whether such right is exercisable immediately or only after the passage of time) pursuant to any agreement, arrangement or understanding (whether or not in writing), or upon the exercise of conversion, exchange purchase rights, warrants or options, or otherwise; (y) the right to vote or to direct the vote of, pursuant to any agreement, arrangement or understanding, whether or not in writing; or (z) the right to dispose, direct, or cause the disposition of, pursuant to any agreement, arrangement or understanding, whether or not in writing; or (C) that are beneficially owned, directly or indirectly, by any other Person or any affiliate or associate thereof with which such Person or any of such Person's affiliates or associates has any agreement, arrangement or understanding, whether or not in writing for the purpose of acquiring, holding, voting or disposing of any such Referenced Securities of the Corporation.
|
(ii)
|
"Business Day" shall mean a day, other than Saturday, Sunday, or public holidays in the United States of America.
|
(iii)
|
"Derivative Instrument" shall mean any option, warrant, convertible security, stock appreciation right, future, forward, swap, borrowing or financing agreement or arrangement, synthetic arrangement or similar right, agreement or arrangement (whether or not currently exercisable and whether written or oral) with an exercise or conversion privilege or a settlement payment or mechanism at a price related to any Referenced Securities of an entity, or with a value derived in whole or in part from the value of any Referenced Securities of an entity, including by reference to the market price, volatility, dividend, or interest rate or other attribute, whether or not such instrument or right shall be subject to settlement through delivery of (or otherwise with respect to) the underlying Referenced Securities, and any other direct or indirect opportunity to profit or share in any profit derived from any increase or decrease in the value of Referenced Securities of an entity, including by reference to the market price, volatility, dividend or interest rate or other attribute, including but not limited to "derivative securities" as defined under Rule 16a-1 under the Exchange Act; provided, however, that Derivative Instrument shall not include interests in broad-based index options, broad-based index futures, and broad-based publicly traded market baskets of stocks approved for trading by the appropriate federal governmental authority.
|
(iv)
|
"Disclosable Interests" shall mean with respect to each Proposing Person: (A) (i) all Long Interests, (ii) all Short Interests, (iii) all indebtedness and other obligations of the Corporation or any of the Corporation’s Subsidiaries, and (iv) all Synthetic Interests with respect to any Referenced Securities of the Corporation or any of its Subsidiaries, in each case (i) through (iv), in which that Proposing Person, directly or indirectly, holds an interest; (B) any proxy (other than a revocable proxy given in response to a public proxy solicitation made pursuant to, and in accordance with, the Exchange Act), agreement, arrangement, understanding or relationship pursuant to which such Proposing Person has or shares a right to, directly or indirectly, vote or direct or cause any third party to vote any Shares; (C) any rights to dividends or other distributions on or with respect to Shares, directly or indirectly, Beneficially Owned by such Proposing Person that are separated or separable from the underlying Shares; (D) any carried interest, profits interest or other performance-related fees (other than an asset based fee) to which such Proposing Person, directly or indirectly, is entitled based on any past, present or future increase or decrease in the value of any Referenced Securities of the Corporation or any of its Subsidiaries and/or Synthetic Interest with respect to any Referenced Security of the Corporation or any of its Subsidiaries; (E) any significant interest in any shares of capital stock, other securities, obligations or indebtedness of or Synthetic Interest in any one or more of the principal competitors or members of the peer group of the Corporation or any of its Subsidiaries (as set forth in the most recent annual report or annual meeting proxy statement, as the case may be, of the Corporation) directly or indirectly held or beneficially owned by such Proposing Person and the class, series, number and, if applicable, principal amount of shares of capital stock, other securities, obligations or indebtedness relating to any such interest; (F) any significant interest, direct or indirect (including, without limitation, any existing or prospective commercial, business or contractual relationship), by security holdings or otherwise, of such Proposing Person, in the Corporation or any Subsidiary thereof, or in their respective obligations, other than an interest arising from ownership of any Referenced Securities where such Proposing Person receives no additional or special benefit not shared on a pro rata basis by all other holders of the same class or series of such securities; and (G) any other information relating to such Proposing Person that would be required to be disclosed in a proxy statement or other filing required to be made in connection with solicitations of proxies or consents by such Proposing Person in support of the nominations or business proposed to be brought before the meeting pursuant to Regulation 14A under the Exchange Act, including without limitation, for purposes of clauses (A) through (G) of this Section 2.14(d)(iv), any of the foregoing held by or otherwise applicable to any member of such Proposing Person's immediate family sharing the same household. With respect to the interests described in clauses (A)(i) through (A)(iv) of this Section 2.14(d)(iv), Disclosable Interests shall also include, without limitation, (x) the date on which the Proposing Person acquired an interest, directly or indirectly, in any Referenced Securities of the Corporation or any of its Subsidiaries and/or Synthetic Interest with respect to any Referenced Securities of the Corporation or any of its Subsidiaries, as applicable, and (y) the initial and present investment intent as to such interests. With respect to any Synthetic Interest, Disclosable Interests shall also include, without limitation, the identification of the counterparty to and any other participant in each such Synthetic Interest and whether (1) such Synthetic Interest conveys to such Proposing Person any voting rights, directly or indirectly, in any Referenced Securities of the Corporation or any of its Subsidiaries, (2) such Synthetic Interest is required to be, or is capable of being, settled through delivery of (or otherwise with respect to) Referenced Securities of the Corporation or any of its Subsidiaries, and (3) such Proposing Person, counterparty, or any other participant in such Synthetic Interest has entered into other transactions, agreements, arrangements, understandings, or relationships that hedge, mitigate, or otherwise alter or affect the economic effect of such Synthetic Interest. Notwithstanding anything to the contrary in this Section 2.14(d)(iv), Disclosable Interests shall not include any such disclosures with respect to the ordinary course of business activities of any broker, dealer, commercial bank, or trust company (or nominee for any of them) who is a Proposing Person solely as a result of being the stockholder directed to prepare and submit the notice required by these By-laws on behalf of a Beneficial Owner.
|
(v)
|
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
|
(vi)
|
"Holder of Record Representation" shall mean a representation by each Proposing Person who is a holder of record of Shares and is giving the required notice to the Secretary pursuant to Section 2.14(a) or Section 2.14(b): (A) that the notice the Proposing Person is giving to the Secretary is being given on behalf of (x) such holder of record and/or (y) if different than such holder of record, one or more Beneficial Owners of Shares held of record by such holder of record, (B) as to each such Beneficial Owner, the number of Shares held of record by such holder of record that are Beneficially Owned by such Beneficial Owner, with documentary evidence of such Beneficial Ownership, and (C) that such holder of record is entitled to vote at such meeting and intends to appear (or have a qualified representative appear in accordance with Section 2.14(c)(iv)) at the meeting to propose such business or nomination.
|
(vii)
|
"Long Interest" shall mean all securities, including securities that are not equity securities, of the Corporation that are Beneficially Owned, other than a Synthetic Long Interest.
|
(viii)
|
"Other Business" shall mean business other than the nomination of persons for election to the Board that the stockholder proposes to bring at a meeting.
|
(ix)
|
"Person" shall mean a natural person, corporation, partnership (general or limited), limited liability company, firm, estate, trust, common or collective fund, association, unincorporated organization, private foundation, joint stock company, or other organization or entity.
|
(x)
|
"Proposed Business Information" shall mean with respect to any Other Business: (A) a reasonably brief description of the business desired to be brought at the meeting; (B) the text of the proposal or business (including the text of any resolutions proposed for consideration and if such business includes a proposal to amend these By-laws, the language of the proposed amendment); (C) the reasons for conducting such business at the meeting; (D) any present or prospective material interest in such business of each Proposing Person; and (E) a summary of any material agreements, arrangements, and understandings regarding the business proposed to be brought at the meeting (x) between or among any of the Proposing Persons or (y) between or among any Proposing Person and any other record or Beneficial Owner of any Referenced Securities of the Corporation and/or Synthetic Interest or any other Person or Persons (including their names).
|
(xi)
|
"Proposed Nomination Information" shall mean with respect to any Proposed Nominee: (A) the name, age, business and residence address, and principal occupation or employment, of the Proposed Nominee; (B) all other information relating to the Proposed Nominee that would be required to be disclosed about such Proposed Nominee if proxies were being solicited for the election of the Proposed Nominee as a Director in an election contest (whether or not such proxies are or will be solicited), or that is otherwise required, in each case pursuant to and in accordance with Regulation 14A under the Exchange Act; (C) such Proposed Nominee's written consent to being named in the proxy statement, if any, as a Proposed Nominee and to serving as a Director if elected; and (D) all information with respect to such Proposed Nominee that would be required to be set forth in a stockholder's notice pursuant to this Section 2.14 if such Proposed Nominee were a Proposing Person.
|
(xii)
|
"Proposed Nominee" shall mean a person or persons nominated by a stockholder or stockholders for election to the Board in accordance with these By-laws.
|
(xiii)
|
"Proposing Person" shall mean (A) the stockholder or stockholders of record giving the notice required by Section 2.14(a) or Section 2.14(b), (B) the Beneficial Owner or Beneficial Owners, if different, on whose behalf such notice is given, and (C) any affiliates or associates (each within the meaning of Rule 12b-2 under the Exchange Act, or its successor provision) of such stockholder(s) of record or Beneficial Owner(s).
|
(xiv)
|
"Proxy Solicitation Representation" shall mean a representation whether any Proposing Person intends or is part of a group that intends (A) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of outstanding Shares required to approve or adopt the proposed business or
|
(xv)
|
"Public Announcement" shall mean disclosure by the Corporation in a press release reported by the Dow Jones News Service, Associated Press, Bloomberg, or comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission pursuant to Sections 13, 14, or 15(d) of the Exchange Act.
|
(xvi)
|
"Referenced Securities" shall mean shares of any class or series of capital stock, other securities, obligations, indebtedness of, or any other legal or beneficial interest in, an entity, whether or not such instrument or right constitutes a "security" under the Exchange Act.
|
(xvii)
|
"Short Interest" shall mean any short sale within the meaning of Rule 200 of the Exchange Act, any sale of borrowed securities, "naked short sale" or any other short interest in any security (including a security that is not an equity security) of the Corporation, other than a Synthetic Short Interest.
|
(xviii)
|
"Stockholder Information" shall mean as to each Proposing Person (A) the name and address of such Proposing Person (including, if applicable, the name and address that appear on the Corporation's books and records); and (B) the class or series and number of shares of capital stock of the Corporation or any of its Subsidiaries that are, directly or indirectly, owned of record or Beneficially Owned by such Proposing Person.
|
(xix)
|
"Subsidiary" or "Subsidiaries" shall mean any corporation, limited liability company, partnership, or other business organization in which the Corporation controls more than 50% of the voting power.
|
(xx)
|
"Synthetic Interest" shall mean any Synthetic Long Interest or Synthetic Short Interest.
|
(xxi)
|
"Synthetic Long Interest" shall mean any Derivative Instrument that represents an opportunity to profit or share in any profit derived from any increase in the value of Referenced Securities of an entity, other than a Long Interest.
|
(xxii)
|
"Synthetic Short Interest" shall mean any Derivative Instrument that represents an opportunity to profit or share in any profit derived from any decrease in the value of Referenced Securities of an entity, other than any Short Interest.
|
(a)
|
Consents to Corporate Action. Unless otherwise provided by the Certificate of Incorporation, any action which is required to be or may be taken at any annual or special meeting of stockholders, subject to the provisions of paragraphs (b) and (c) of this Section 2.15, may be taken without a meeting, without prior notice and without a vote if a consent or consents in writing, setting forth the action so taken, shall have been signed by the holders of the outstanding Shares having not less than the minimum number of votes that would be necessary to authorize or to take such action at a meeting at which all Shares entitled to vote thereon were present and voted and shall be delivered to the Corporation by delivery to its registered office in the State of Delaware or its principal place of business, or to an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a Corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. Prompt notice of the taking of the corporate action without a meeting and by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that consents in writing signed by a sufficient number of the holders to take the action were delivered to the Corporation.
|
(b)
|
Determination of Record Date of Action by Consent. In order that the Corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting (including by electronic transmission as permitted by law), the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than 10 days after
|
(c)
|
Electronic Transmission. An electronic transmission consenting to an action to be taken and transmitted by a stockholder or proxyholder, or by a person or persons authorized to act for a stockholder or proxyholder, shall be deemed to be written and signed for the purposes of this Section 2.15; provided, however, that any such electronic transmission sets forth or is delivered with information from which the Corporation can determine (i) that the electronic transmission was transmitted by the stockholder or proxyholder or by a person or persons authorized to act for the stockholder or proxyholder, and (ii) the date on which such stockholder or proxyholder or authorized person or persons transmitted such electronic transmission. The date on which such electronic transmission is transmitted shall be deemed to be the date on which such consent was signed. A consent given by electronic transmission is delivered to the Corporation upon the earliest of: (i) when the consent enters an information processing system, if any, designated by the Corporation for receiving consents, so long as the electronic transmission is in a form capable of being processed by that system and the Corporation is able to retrieve that electronic transmission; (ii) when a paper reproduction of the consent is delivered to the Corporation’s principal place of business or an officer or agent of the Corporation having custody of the book in which proceedings of meetings of stockholders are recorded; (iii) when a paper reproduction of the consent is delivered to the Corporation’s registered office in the State of Delaware by hand or by certified or registered mail, return receipt requested; or (iv) when delivered in such other manner, if any, provided by resolution of the Board. A consent given by electronic transmission is delivered under this Section 2.15 even if no person is aware of its receipt. Receipt of an electronic acknowledgement from an information processing system establishes that a consent given by electronic transmission was received but, by itself, does not establish that the content sent corresponds to the content received.
|
(d)
|
Copy, Facsimile, or Other Reproduction. Any copy, facsimile, or other reliable reproduction of a consent in writing may be substituted or used in lieu of the original writing for any and all purposes for which the original writing could be used; provided, however, that such copy, facsimile or other reproduction shall be a complete reproduction of the entire original writing.
|
(e)
|
Procedures for Written Consent. In the event of the delivery to the Corporation of a written consent or consents purporting to represent the requisite voting power to authorize or take corporate action and/or related revocations, the Secretary shall provide for safekeeping of such consents and revocations and shall, as promptly as practicable, engage nationally recognized independent judges of election for the purpose of promptly performing a ministerial review of the validity of the consents and revocations. No action by written consent and without a meeting shall be effective until such judges have completed their review, determined that the requisite number of valid and unrevoked consents has been obtained to authorize or take action specified in the consents, and certified such determination for entry in the records of the Corporation kept for the purpose of recording the proceedings of meetings of stockholders.
|
(a)
|
In lieu of holding an annual or special meeting of stockholders at a designated place as set forth in Section 2.01, the Board may, in its sole discretion, determine that any annual or special meeting of stockholders may be held solely by means of remote communication.
|
(b)
|
If authorized by the Board, in its sole discretion, and subject to such guidelines and procedures as the Board may adopt, stockholders and proxyholders may, by means of remote communication:
|
(i)
|
participate in a meeting of stockholders, whether such meeting is held at a designated place or solely by means of remote communication; and
|
(ii)
|
be deemed present in person and vote at a meeting of stockholders, whether such meeting is to be held at a designated place or solely by means of remote communication; provided, however, that (A) the Corporation shall implement reasonable measures to verify that each person deemed present and permitted to vote at the meeting by means of remote communication is a stockholder or proxyholder, (B) the Corporation shall implement reasonable measures to provide such stockholders and proxyholders a reasonable opportunity to participate in the meeting and to vote on matters submitted to the stockholders, including an opportunity to read or hear the proceedings of the meeting substantially concurrently with such proceedings, and (C) if any stockholder or proxyholder votes or takes action at the meeting by means of remote communication, a record of such vote or other action shall be maintained by the Corporation.
|
(a)
|
Annual Meetings. As soon as practicable after each annual election of Directors by the stockholders, the Board shall meet for the purpose of organization and the transaction of other business, unless it shall have transacted all such business by written consent pursuant to Section 3.08 hereof.
|
(b)
|
Regular Meetings. The Board may provide for regular stated meetings of the Board.
|
(c)
|
Special Meetings. Special meetings of the Board shall be held at such times as determined by the Chairman, Chief Executive Officer, the President or the Secretary acting under instructions from the Chairman, Chief Executive Officer or President or shall be held upon the call of a majority of the Board. Special meetings of the Board may be held at any date, time and place, if any.
|
(d)
|
Notice of Meetings. No notice need be given of any annual or regular meeting of the Board for which the date, hour and place have been fixed by the Board. The Secretary shall give notice to each Director of each other annual or regular meeting and of all special meetings of the Board, which notice shall state the place, date, time and purpose of such meeting. Notice of each such meeting shall be given to each Director at least twenty-four hours before the time at which such meeting is to be held. Such notice may be communicated, without limitation, in person; by telephone, by facsimile telecommunication, electronic mail or other form of electronic transmission, or by mail or private carrier. Written notice of a meeting is effective at the earliest of the following:
|
(i)
|
when received;
|
(ii)
|
upon its deposit in the United States mail, as evidenced by the postmark, if mailed with postage thereon prepaid and correctly addressed;
|
(iii)
|
if sent by facsimile telecommunication, on the date such facsimile is sent to the facsimile transmission number at which the Director has consented to receive notice;
|
(iv)
|
if sent by electronic mail, when sent to the electronic mail address for such Director appearing on the records of the Corporation or at which the Director has consented to receive notice;
|
(v)
|
if sent by any other form of electronic transmission, when sent in the manner pursuant to which the Director has consented to receive notice; or
|
(vi)
|
on the date shown on the confirmation of delivery issued by a private carrier, if sent by private carrier to the address of the Director last known to the Corporation.
|
(e)
|
Place of Meetings. The Board may hold its meetings at such place or places within or without the State of Delaware as the Board or the Chairman may from time to time determine, or as shall be designated in the respective notices or waivers of notice of such meetings.
|
(f)
|
Quorum and Manner of Acting. A majority of the total number of Directors then in office (but in no event less than three Directors) shall be present in person at any meeting of the Board in order to constitute a quorum for the transaction of business at such meeting, and the vote of a majority of those Directors present at any such meeting at which a quorum is present shall be necessary for the passage of any resolution or act of the Board, except as otherwise expressly required by law, the Certificate of Incorporation or these By-laws. In the absence of a quorum for any such meeting, a majority of the Directors present thereat may adjourn such meeting from time to time until a quorum shall be present.
|
(g)
|
Conduct of Meetings. At each meeting of the Board, one of the following shall act as the presiding officer of the meeting and preside, in the following order of precedence:
|
(i)
|
the Chairman;
|
(ii)
|
the Chief Executive Officer;
|
(iii)
|
any Director chosen by a majority of the Directors present.
|
(h)
|
The Board may adopt such rules and regulations not inconsistent with the Certificate of Incorporation, these By-laws, or applicable law for the conduct of its meetings and management of the affairs of the Corporation as the Board may deem proper.
|
(a)
|
Term. Each officer shall be appointed by the Board and shall hold office for such term as may be determined by the Board. Each officer shall hold office until his successor has been appointed and qualified or his earlier death or resignation or removal in the manner hereinafter provided. The Board may require any officer to give security for the faithful performance of his duties.
|
(b)
|
Resignation. Any officer may resign at any time by giving notice in writing or by electronic transmission to the Board, the President or the Secretary; provided, however, that if such notice is given by electronic transmission, such electronic transmission must set forth (or be submitted with) information from which it can be determined by the Board that the electronic transmission was authorized by the officer. Such resignation shall take effect at the time specified in such notice or, if the time be not specified, upon receipt thereof by the Board, the President or the Secretary, as the case may be. Unless otherwise specified therein, acceptance of such resignation shall not be necessary to make it effective.
|
(c)
|
Removal. All officers and agents appointed by the Board shall be subject to removal, with or without cause, at any time by the Board or by the action of the holders of record of a majority of the Shares entitled to vote thereon.
|
(a)
|
The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, other than an action by or in the right of the Corporation, by reason of the fact that he is or was a Director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with such action, suit or proceeding if he acted in good faith and in a manner he or she reasonably believed to be in or not opposed to the best interests of the Corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful. The termination of any action, suit or proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person seeking indemnification did not act in good faith and in a manner which he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, with respect to any criminal action or proceeding, had reasonable cause to believe that his conduct was unlawful. Notwithstanding the foregoing, except as provided in Section 6.01(d) with respect to proceedings to enforce rights to indemnification or advancement, the Corporation shall indemnify any person in connection with an action, suit or proceeding (or part thereof) initiated by such person only if such action, suit or proceeding (or part thereof) was authorized by the Board.
|
(b)
|
The Corporation shall indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Corporation to procure a judgment in its favor by reason of the fact that he is or was a Director, officer or employee of the Corporation, or is or was serving at the request of the Corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys' fees) actually and reasonably incurred by him in connection with the defense or settlement of such action or suit if he acted in good faith and in a manner he reasonably believed to be in or not opposed to the best interests of the Corporation and except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Corporation, unless, and only to the extent that, the Court of Chancery of the State of Delaware or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability, but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.
|
(c)
|
Notwithstanding, and without limitation of, any other provision of this Article VI, to the extent that a Director, officer or employee of the Corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding referred to in Section 6.01(a) and (b) of these By-laws, or in defense of any claim, issue or matter therein, he shall be indemnified against expenses (including attorneys' fees) actually and reasonably incurred by him in connection therewith.
|
(d)
|
If a claim for indemnification or advancement under Sections 6.01(a), 6.01(b), 6.01(c), or 6.01(f) is not paid in full by the Corporation within 60 days after a written claim has been received by the Corporation, the person who has made such claim (the "indemnitee") may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim. To the fullest extent permitted by law, if the indemnitee is successful in whole or in part in any such suit, the indemnitee shall be entitled to be paid also the expense of prosecuting or defending such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder it shall be a defense that the indemnitee has not met any applicable standard for indemnification set forth in the DGCL. Neither the failure of the Corporation (including its Directors who are not parties to such action, a committee of such Directors, independent legal counsel, or its stockholders) to have made a determination prior to the commencement of such suit that indemnification of the indemnitee is proper in the circumstances because the indemnitee has met the applicable standard of conduct set forth in the DGCL, nor an actual determination by the Corporation (including its Directors who are not parties to such action, a committee of such Directors, independent legal counsel, or its stockholders) that the indemnitee has not met such applicable standard of conduct, shall create a presumption that the indemnitee has not met the applicable standard of conduct or be a defense to such suit. In any suit brought by the indemnitee to enforce a right to indemnification hereunder, the burden of proving that the indemnitee is not entitled to be indemnified under this Article VI or otherwise shall be on the Corporation.
|
(e)
|
Any indemnification under Section 6.01(a) and (b) of these By-laws (unless ordered by a court) shall be made by the Corporation only as authorized in the specific case upon a determination that indemnification of the director, officer or employee is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 6.01(a) and (b) of these By-laws. Such determination shall be made with respect to a person who is a Director or officer of the Corporation at the time of such determination (i) by the Board by a majority vote of Directors who were not parties to such action, suit or proceeding, even though less than a quorum, or (ii) a committee of such directors designated by a majority vote of such Directors, even though less than a quorum, or (iii) if there are no such Directors or if such Directors so direct, by independent legal counsel in a written opinion, or (iv) by the stockholders of the Corporation.
|
(f)
|
Expenses (including attorneys' fees) incurred by a current or former Director or officer of the Corporation in defending any civil, criminal, administrative or investigative action, suit or proceeding shall be paid by the Corporation in advance of the final disposition of such action, suit or proceeding; provided, however, that if the DGCL requires, an advancement of expenses incurred by such a person in his capacity as a Director or officer of the Corporation shall only be made upon receipt of an undertaking by or on behalf of such Director or officer to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the Corporation
|
(g)
|
The indemnification and advancement of expenses provided by, or granted pursuant to, other Sections of this Article shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under any law, provision of the Certificate of Incorporation, by-law, agreement, vote of stockholders or disinterested Directors or otherwise, both as to action in an official capacity and as to action in another capacity while holding such office.
|
(h)
|
For purposes of this Article, references to the "Corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers or employees so that any person who is or was a director, officer or employee of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer or employee of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued.
|
(i)
|
For purposes of this Article, references to "other enterprises" shall include employee benefit plans, references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the Corporation" shall include any service as a Director, officer or employee of the Corporation which imposes duties on, or involves service by, such Director, officer or employee with respect to any employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the Corporation" as referred to in this Article.
|
(j)
|
The indemnification and advancement of expenses provided by, or granted pursuant to, this Article shall, unless otherwise provided when authorized or ratified, continue as to a person who has ceased to be a director, officer or employee and shall inure to the benefit of the heirs, executors and administrators of such a person.
|
(a)
|
All Performance Stock Units shall be unearned and unvested unless and until they become earned and vested and nonforfeitable in accordance with this subparagraph 3(a). The Participant shall have the ability to earn between 0% and 200% of the Target Performance Units, as determined by the Committee, based on the continuing employment of the Participant during the period beginning on January 1, 2017 and ending on the December 31, 2019 (the “Performance Period”) and satisfaction of the Performance Goals set forth in Exhibit A hereto (which is incorporated into and forms part of this Agreement). Any Performance Stock Units granted pursuant to this Agreement that become earned in accordance with this Agreement shall be referred to herein as “Earned Performance Units”. Except as provided in subparagraph 3(b), if the Participant’s termination of employment or service with the Company (the “Termination Date”) occurs for any reason prior to the last day of the Performance Period, the Participant’s right to all Performance Stock Units (and any associated Dividend Equivalent Units) awarded or credited to the Participant pursuant to this Agreement shall expire and be forfeited immediately and
|
(b)
|
Notwithstanding the provisions of subparagraph 3(a), if the Participant’s Termination Date occurs on or after the first anniversary of the beginning of the Performance Period and prior to the last day of the Performance Period by reason of death, Disability (as defined in subparagraph 3(c)), involuntary termination by the Company other than for Cause (as defined in subparagraph 3(c)), or Retirement (as defined in subparagraph 3(c), the Participant (or, in the event of his death, his beneficiary) shall be entitled to that number of Earned Performance Units (and any associated Earned Dividend Equivalent Units thereon) equal to the product of (A) the number of Earned Performance Units (and any associated Earned Dividend Equivalent Units) that the Participant would have been entitled to receive had his Termination Date not occurred prior to the end of the Performance Period based on actual satisfaction of the Performance Goals, multiplied by (B) a fraction (1) the numerator of which is the number of days during the Performance Period prior to and including the Termination Date and (2) the denominator of which is the total number of days in the Performance Period.
|
(c)
|
For purposes of the Award evidenced by this Agreement, (i) a Participant’s Termination Date shall be considered to occur by reason of Disability if his Termination Date occurs on or after the date on which he is entitled to long-term disability benefits under the Company’s long-term disability plan (or, if the Participant is not eligible for such plan, if the Participant would be entitled to benefits under such plan if he were eligible) and such Termination Date does not occur for any other reason, (ii) the Participant’s Termination Date shall be considered to occur by reason of Cause if the Participant’s Termination Date occurs by reason of termination by the Company and is on account of (A) any act or omission by the Participant resulting in, or intending to result in, personal gain at the expense of the Company; (B) the improper disclosure by the Participant of proprietary or confidential information of the Company; (C) misconduct by the Participant, including, but not limited to, fraud, intentional violation of, or negligent disregard for, the rules and procedures of the Company (including the code of business conduct), theft, violent acts or threats of violence, or possession of controlled substances on the property of the Company; or (D) poor performance or other reasons under which the Participant terminates not in good standing; provided, however, that the meaning of “Cause” shall be (1) expanded to include any additional grounds for cause-based termination specified in any contract, policy or plan applicable to the Participant or (2) superseded to the extent expressly provided in such contract, policy or plan, and (iii) the Participant’s Termination Date shall be considered to occur on account of Retirement if the Participant’s Termination Date occurs on or after the date on which the Participant has attained age 55 and such termination date does not occur for any other reason.
|
(a)
|
If, during the Performance Period, a dividend with respect to shares of Common Stock is paid in cash, then as of the dividend payment date the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the cash dividend paid with respect to a share of Common Stock, multiplied by (ii) 200% of the Target Performance Units (the “Maximum Performance Units”) plus the number of previously credited Dividend Equivalent Units with respect to such Performance Stock Units, if any, divided by (iii) the Fair Market Value of a share of Common Stock on the dividend payment date, rounded down to the nearest whole number.
|
(b)
|
If, during the Performance Period, a dividend with respect to shares of Common Stock is paid in shares of Common Stock, then as of the dividend payment date the Participant shall be credited with that number of Dividend Equivalent Units equal to (i) the number of shares of Common Stock distributed in the dividend with respect to a share of Common Stock, multiplied by (ii) the number of Maximum Performance Units, plus (iii) the number of previously credited Dividend Equivalent Units with respect to such Performance Stock Units, if any, rounded down to the nearest whole number.
|
(a)
|
and if the Participant is a specified employee (within the meaning of section 409A(a)(2)(B) of the Code) and if any such payment or benefit is required to be made or provided prior to the first day of the seventh month following the Participant’s separation from service or termination of employment, such payment or benefit shall be delayed until the first day of the seventh month following the Participant’s separation from service; and
|
(b)
|
the determination as to whether the Participant has had a termination of employment (or separation from service) shall be made in accordance with the provisions of section 409A of the Code and the guidance issued thereunder without application of any alternative levels of reductions of bona fide services permitted thereunder.
|
|
|
AAC
|
AFG
|
||
Rating
|
Payout Multiple
|
ALR
|
Adjusted Net Asset Value
($mm)
|
ACC Outstanding ($bn)
|
Cumulative EBITDA ($mm)
|
1
|
2.00
|
105.3%
|
$312
|
$10.50
|
$19
|
2
|
1.50
|
102.8%
|
$167
|
$11.00
|
$16
|
3
|
1.25
|
100.3%
|
$18
|
$11.25
|
$13
|
4
|
1.00
|
97.8%
|
$(134)
|
$11.50
|
$6
|
5
|
0.50
|
95.3%
|
$(290)
|
$12.00
|
$3
|
6
|
0.00
|
92.8%
|
$(450)
|
$17.04
|
$0
|
1.
|
Demise; Term 1
|
2.
|
Fixed Rent. 3
|
3.
|
Additional Rent 4
|
4.
|
Use 6
|
5.
|
Quiet Enjoyment 6
|
6.
|
Services ………………………………………………………………………………….. 6
|
7.
|
Incorporation; Lease. 7
|
8.
|
Remedies. 8
|
9.
|
Termination of Lease 8
|
10.
|
Subordination 9
|
11.
|
Assignment and Subleasing 9
|
12.
|
Sublandlord's Obligations 17
|
13.
|
Broker 18
|
14.
|
Holdover 19
|
15.
|
Insurance 20
|
16.
|
Condition of the Premises 20
|
17.
|
Merger 20
|
18.
|
Notices 20
|
19.
|
Consents 22
|
20.
|
Delivery of Possession…………………………………………………………………22
|
21.
|
Damage by Fire or Other Cause; Condemnation 23
|
22.
|
Security 23
|
23
|
Alterations Work Allowance; 25
|
24
|
Furniture, Fixtures and Equipment 28
|
25
|
Condenser Water 28
|
26
|
Loading Dock; Freight Elevators 29
|
27
|
Core and Shaft Space 29
|
28
|
Signage 29
|
29
|
INTENTIONALLY OMITTED. 29
|
30
|
Termination Option 29
|
31
|
Cafeteria 30
|
32
|
Access 30
|
33
|
Governmental Incentives 30
|
34.
|
Communications 31
|
35.
|
Authority 31
|
36.
|
ACP5 31
|
(A)
|
for the period commencing on the Rent Commencement Date (as defined below) and ending on the day immediately preceding the fifth
|
(B)
|
for the period commencing on the fifth (5th) anniversary of the Rent Commencement Date and ending on the Expiration Date, at the rate of $2,768,693.04 per annum, payable in equal monthly installments of $230,724.42 (i.e. $59.00 per rentable square foot) of;
|
1.
|
All references to “Work Letter”, “Basic Construction”, and “Tenant’s Work” in the Lease.
|
2.
|
1.02 Leasing of the Demised Premises
|
3.
|
1.03 Initial Expansion/Contraction Option
|
4.
|
Article 2 Commencement of Term; Access to and Possession of Demised Premises; Completion of the Demised Premises
|
5.
|
3.01 Fixed Rent
|
6.
|
3.02 Additional Rent
|
7.
|
Article 4 PILOT Payments, Expense Payments CAM Payments, solely with respect to Articles 4.02 A, C, the penultimate and last paragraph of D, E, F, G, H, I , 4.03 B, C, D, E, F, 4.04 A, B, C, 4.05 A, B, C, D, E, F
|
8.
|
5.01 Permitted Use, solely with respect to any infirmary, health or fitness center, childcare, test kitchens, employee kitchens, cafeterias, serveries and dining rooms and any references to the Basic Construction and the third to last and penultimate sentences thereof.
|
9.
|
Article 5.04 Licenses and Permits, solely with respect to the last sentence thereof
|
10.
|
6.01 Services and Equipment solely with respect to the following: Section 6.01(A)(1) except for clause (ii) of the first sentence thereof, which shall be deemed incorporated herein; Section 6.01(A)(2); Section 6.01(A)(3) solely with respect to the last sentence of the first
|
11.
|
6.05 solely with respect to the penultimate sentence and the last sentence thereof
|
12.
|
6.06 Condenser Water
|
13.
|
6.07 Fire Stairs
|
14.
|
6.08 Interruption of Services
|
15.
|
7.01 Electric Services solely with respect to the last sentence of clause (a) and with respect to clauses (c) and (g).
|
16.
|
7.02 solely with respect to the parenthetical in the third sentence thereof; “(not to be unreasonably withheld, delayed or conditioned and to be deemed granted if not denied
|
17.
|
7.04 Electric Rates, solely with respect to clause (c) thereof
|
18.
|
7.09 Submeter Accuracy Check
|
19.
|
Article 8 Assignment, Subletting and Mortgaging
|
20.
|
Article 9 Subordination, Non-Disturbance, Estoppel Certificate
|
21.
|
10.01 Work by Landlord except with respect to the first sentence thereof which shall be deemed incorporated herein
|
22.
|
10.02 solely with respect to the term renewed and the parenthetical “(or if the term is renewed and such renewal is revoked by Tenant as set forth in section 38.05B hereof)”
|
23.
|
10.03 Additional Conditions solely with respect to the penultimate sentence thereof
|
24.
|
10.04 Restrictions upon Landlord
|
25.
|
11.03 Compliance by Landlord, it being understood that such obligations and indemnification shall remain the sole obligations of Prime Lessor
|
26.
|
13.04 Miscellaneous Restrictions, solely with respect to the following: Section 13.04(G) solely with respect to the third sentence thereof; Section 13.04(J) with respect to any reference to “change of use” and it being understood that (x) such obligations in Section 13.04(J) of the Lease shall remain the sole obligation of Prime Lessor, (y) any rent abatement pursuant to Section 13.04(J) of the Lease is subject to Article 12(i) of this Sublease and (z) any reimbursement of costs shall be paid to Subtenant to the extent the Sublandlord actually receives same from Prime Lessor.
|
27.
|
13.05 Charges and Other Restrictions, solely with respect to the references to Tenant’s Work and section (D) thereof
|
28.
|
13.06 Arbitration
|
29.
|
14.01(B) Self Help Rights
|
30.
|
14.02 (B) Offset Right
|
31.
|
15.02 Force Majeure solely with respect to any reference to the Work Letter.
|
32.
|
15.04 No Recourse to Principals of Landlord
|
33.
|
15.05 Recourse to Principals of Landlord
|
34.
|
16.09 Landlord’s Insurance (except as provided in Article 12(i) of this Sublease
|
35.
|
22.02 (A) Holdover Charges
|
36.
|
Article 23 Definition of Landlord
|
37.
|
Article 24 Notices
|
38.
|
Article 25 Arbitration
|
39.
|
Article 27 Broker
|
40.
|
Article 32.13
|
41.
|
Article 32.21 Bicycles, it being understood that all obligations and liabilities shall remain the sole obligations and liabilities of Prime Lessor.
|
42.
|
32.26 Management Committee
|
43.
|
32.27 Net Lease and REOA
|
44.
|
34.01 Representations by Landlord
|
45.
|
34.02 Removal of Hazardous Material solely with respect to the third, penultimate and final sentence thereof
|
46.
|
Article 37 Expansion Options
|
47.
|
Article 38 Renewal Option
|
48.
|
Article 40 Satellite Antenna
|
49.
|
Article 41 Name and Signage Rights
|
50.
|
Article 42 Cafeteria, Kitchen, Servery, Test Kitchens and Private Dining Facility
|
51.
|
Article 43 Subgrade Lobby
|
52.
|
Article 44 Main Lobby Reception Desks
|
53.
|
Article 45 Newsstand
|
54.
|
Article 46 Building Restrictions on Other Tenants
|
55.
|
Article 48 Pedestrian Access and Vehicular Management
|
56.
|
Article 49 Memorandum of Lease
|
57.
|
Article 51 Delayed Delivery Indemnity Agreement and Lease Takeover Agreement
|
58.
|
Article 52 Port Authority Agreement
|
59.
|
Article 53 Tenant Guaranty
|
60.
|
Article 54 Vehicular Access
|
61.
|
Article 56 Governmental Incentives
|
•
|
Delayed Delivery Indemnity Agreement
|
•
|
Agreement between PANYNJ and Tenant
|
•
|
Non-Disturbance & Attornment Agreement between The Port Authority and Tenant
|
•
|
Lease Takeover Agreement
|
•
|
REOA Recognition Agreement
|
•
|
Tenant Estoppel Statement
|
•
|
Notice from Tenant to 4 TS
|
•
|
Letter of Intent
|
•
|
Letter Agreement
|
•
|
Letter from Port Authority to Tenant
|
•
|
Escrow Letter
|
•
|
Port Authority Memorandum; and
|
•
|
Government Incentives Documents
|
AVAILABLE WITH:
|
THE BANK OE NEW YORK MELLON
|
1.
|
Time Inc.
|
2.
|
Hachette
|
3.
|
Hearst
|
4.
|
Meredith Corporation
|
5.
|
Bonnier
|
6.
|
Readers Digest
|
7.
|
Glam Media
|
8.
|
Martha Stewart
|
9.
|
Huffington Post
|
(i)
|
If to AFG or AAC, to both:
|
(ii)
|
If to the Executive:
|
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
|
|
March 2, 2020
|
Jeffrey S. Stein
|
|
|
|
|
|
|
|
|
|
/S/ CLAUDE LeBLANC
|
|
President, Chief Executive Officer and Director
|
|
March 2, 2020
|
Claude LeBlanc
|
|
(Principal Executive Officer)
|
|
|
|
|
|
|
|
/S/ DAVID TRICK
|
|
Executive Vice President and Chief Financial Officer
|
|
March 2, 2020
|
David Trick
|
|
(Principal Financial Officer)
|
|
|
|
|
|
|
|
/S/ ROBERT B. EISMAN
|
|
Senior Managing Director and Chief Accounting Officer
|
|
March 2, 2020
|
Robert B. Eisman
|
|
(Principal Accounting Officer)
|
|
|
|
|
|
|
|
/S/ ALEXANDER D. GREENE
|
|
Director
|
|
March 2, 2020
|
Alexander D. Greene
|
|
|
|
|
|
|
|
|
|
/S/ IAN D. HAFT
|
|
Director
|
|
March 2, 2020
|
Ian D. Haft
|
|
|
|
|
|
|
|
|
|
/S/ DAVID L. HERZOG
|
|
Director
|
|
March 2, 2020
|
David L. Herzog
|
|
|
|
|
|
|
|
|
|
/S/ C. JAMES PRIEUR
|
|
Director
|
|
March 2, 2020
|
C. James Prieur
|
|
|
|
|
|
|
|
|
|
/S/ JOAN LAMM -TENNANT
|
|
Director
|
|
March 2, 2020
|
Joan Lamm-Tennant
|
|
|
|
|
1.
|
I have reviewed this Annual Report on Form 10-K for the year ended December 31, 2019 of Ambac Financial Group, Inc. (the "registrant");
|
2.
|
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
|
3.
|
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
|
4.
|
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a—15(e) and 15d—15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
|
a.
|
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
|
b.
|
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
|
c.
|
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
|
d.
|
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
|
5.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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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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March 2, 2020
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By:
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/s/ Claude LeBlanc
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|
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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, 2019 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.
|
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:
|
a.
|
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
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b.
|
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
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Dated:
|
March 2, 2020
|
By:
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/s/ David Trick
|
|
|
|
David Trick
|
|
|
|
Executive Vice President and Chief Financial Officer
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(1)
|
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)
|
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
|
|
By:
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/s/ Claude LeBlanc
|
|
|
Name:
|
Claude LeBlanc
|
|
|
Title:
|
President and Chief Executive Officer
|
|
|
|
|
|
|
By:
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/s/ David Trick
|
|
|
Name:
|
David Trick
|
|
|
Title:
|
Executive Vice President and Chief Financial Officer
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Dated:
|
March 2, 2020
|
|
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