FORM 10-Q
                           ---------------------------

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934
                  For the quarterly period ended March 31, 1999

                                       or

[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934

                  For the transition period from _____ to _____



                         Commission File Number 0-22342

                               TRIAD GUARANTY INC.
             (Exact name of registrant as specified in its charter)


        DELAWARE                                       56-1838519
(State of Incorporation)                 (I.R.S. Employer Identification Number)

                       101 SOUTH STRATFORD ROAD, SUITE 500
                       WINSTON-SALEM, NORTH CAROLINA 27104
                    (Address of principal executive offices)

                                 (336) 723-1282
              (Registrant's telephone number, including area code)
                          -----------------------------

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes /X/  No / /

Number of shares of Common Stock, $.01 par value, outstanding as of May 6, 1999:
13,292,694 shares.


<PAGE>





                               TRIAD GUARANTY INC.

                                      INDEX
                                                                           Page
                                                                          Number
Part I. Financial Information:

    Item 1. Financial Statements:

    Consolidated Balance Sheets as of March 31, 1999 (Unaudited)
             and December 31, 1998.............................................3

    Consolidated Income Statements for the Three Month
             Periods Ended March 31, 1999 and 1998 (Unaudited) ................4

    Consolidated Statements of Cash Flows for the Three Month
             Periods Ended March 31, 1999 and 1998 (Unaudited).................5

    Notes to Consolidated Financial Statements.................................6

    Item 2. Management's Discussion and Analysis of Financial Condition and
             Results of Operations.............................................9

Part II. Other Information:

    Item 6. Exhibits and Reports on Form 8-K..................................15

    Signatures................................................................15


                                        2

<PAGE>

                               TRIAD GUARANTY INC.
                           CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                              March 31,       December 31,
                                                               1999              1998
                                                            ------------     ------------
                                                             (Unaudited)
<S>                                                         <C>              <C>         
Assets
Invested assets:
Fixed maturities, available-for-sale, at fair value ......  $156,410,369     $157,391,829
Equity securities, available-for-sale, at fair value......    13,741,415       14,024,012
Short-term investments....................................     6,509,994        5,885,192
Other invested assets.....................................     3,000,000              ---
                                                            ------------     ------------
                                                             179,661,778      177,301,033

Cash......................................................       394,147          444,200
Accrued investment income.................................     2,407,728        2,258,878
Deferred policy acquisition costs.........................    17,224,016       16,015,559
Property and equipment....................................     3,971,366        3,446,656
Prepaid reinsurance premium...............................        11,953           14,703
Reinsurance recoverable...................................       501,553          610,817
Other assets..............................................     5,364,567        5,163,924
                                                            ------------     ------------
Total assets..............................................  $209,537,108     $205,255,770
                                                            ============     ============

Liabilities and stockholders' equity
Liabilities:
    Losses and loss adjustment expenses...................   $14,433,539     $ 12,142,990
    Unearned premiums.....................................     6,911,848        7,054,737
    Current taxes payable.................................        58,470           45,787
    Deferred income taxes.................................    10,012,727        7,930,878
    Unearned ceding commission............................       515,508          621,161
    Long-term debt........................................    34,458,268       34,457,080
    Accrued interest on debt..............................       583,722        1,274,972
    Accrued expenses and other liabilities................     2,294,936        4,196,825
                                                            ------------     ------------
Total liabilities.........................................    69,269,018       67,724,430
Commitments and contingent liabilities - Note 4
Stockholders' equity:
    Preferred stock, par value $.01 per share 
      authorized 1,000,000 shares; no shares issued
      and outstanding.....................................           ---              ---
    Common stock, par value $.01 per share 
      authorized 32,000,000 shares; 13,292,694 issued
      and outstanding shares at March 31, 1999 and 
      13,408,869 at December 31, 1998.....................       132,927          134,089
    Additional paid-in capital............................    61,780,335       61,538,613
    Accumulated other comprehensive income, net
      of income tax liability of $1,354,382 at 
      March 31, 1999 and $2,101,170 at December  31, 1998.     2,521,028        3,907,920
    Deferred compensation.................................       (95,445)             ---
    Retained earnings.....................................    75,929,245       71,950,718
                                                            ------------     ------------
Total stockholders' equity................................   140,268,090      137,531,340
                                                            ------------     ------------
Total liabilities and stockholders' equity................  $209,537,108     $205,255,770
                                                            ============     ============
</TABLE>

                             See accompanying notes.

                                        3
<PAGE>

                               TRIAD GUARANTY INC.
                         CONSOLIDATED INCOME STATEMENTS
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                          Three Months Ended
                                                                March 31
                                                      -------------------------
                                                        1999            1998
                                                        ----            ----
<S>                                                   <C>           <C>        
Revenue:
Premiums written:
   Direct...........................................  $15,107,637   $11,569,733
   Assumed..........................................        5,632         5,821
   Ceded............................................     (267,008)     (240,499)
                                                      -----------   -----------
Net premiums written................................   14,846,261    11,335,055
Change in unearned premiums.........................      140,139       595,201
                                                      -----------   -----------
Earned premiums.....................................   14,986,400    11,930,256
Net investment income...............................    2,448,978     2,038,569
Realized investment gains...........................      857,001       115,513
Other income........................................        4,309           470
                                                      -----------   -----------
                                                       18,296,688    14,084,808
Losses and expenses:
Losses and loss adjustment expenses.................    2,922,006     1,479,704
Reinsurance recoveries..............................       (6,955)       (2,472)
                                                      -----------   -----------
Net losses and loss adjustment expenses.............    2,915,051     1,477,232
Interest expense on debt............................      692,438       476,888
Amortization of deferred policy acquisition costs...    1,716,465     1,272,708
Other operating expenses (net)......................    3,552,158     3,091,460
                                                      -----------   -----------
                                                        8,876,112     6,318,288
                                                      -----------   -----------
Income before income taxes..........................    9,420,576     7,766,520
Income taxes:
   Current..........................................       12,684           213
   Deferred.........................................    2,828,638     2,383,111
                                                      -----------   -----------
                                                        2,841,322     2,383,324
                                                      -----------   -----------
Net income..........................................  $ 6,579,254   $ 5,383,196
                                                      ===========   ===========

Earnings per common and
   common equivalent share:
   Basic............................................      $ .49         $ .40
                                                      ===========   ===========
   Diluted..........................................      $ .48         $ .39
                                                      ===========   ===========

Shares used in computing earnings
   per common and common equivalent share:
   Basic............................................   13,358,268    13,301,554
                                                      ===========   ===========
   Diluted..........................................   13,687,648    13,870,538
                                                      ===========   ===========
</TABLE>

                             See accompanying notes.


                                        4

<PAGE>

                               TRIAD GUARANTY INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (Unaudited)

<TABLE>
<CAPTION>
                                                          Three Months Ended
                                                               March 31
                                                     ---------------------------
                                                          1999          1998
                                                          ----          ----
<S>                                                   <C>           <C>        
Operating activities
Net income........................................... $ 6,579,254   $ 5,383,196
Adjustments to reconcile net income to net 
  cash provided by operating activities:
   Loss and unearned premium reserves................   2,147,660        70,916
   Accrued expenses and other liabilities............  (1,906,674)     (634,126)
   Current taxes payable.............................      12,683             4
   Accrued investment income.........................    (148,850)     (529,136)
   Policy acquisition costs deferred.................  (2,924,922)   (1,903,445)
   Amortization of policy acquisition costs..........   1,716,465     1,272,708
   Net realized investment gains ....................    (857,001)     (115,513)
   Provision for depreciation........................     182,457       206,811
   Accretion of discount on investments..............    (270,204)     (197,715)
   Deferred income taxes.............................   2,828,638     1,417,594
   Real estate acquired in claim settlement..........    (145,515)      141,999
   Accrued interest on debt..........................    (691,250)      476,194
   Other assets......................................     (55,128)     (354,661)
   Other operating activities........................      28,490           - -
                                                      -----------   ------------
Net cash provided by operating activities............   6,496,103     5,234,826
Investing activities Securities available-for-sale:
    Purchases - fixed maturities.....................  (9,737,219)  (38,143,846)
    Sales - fixed maturities.........................   9,648,176     3,814,529
    Purchases - equities.............................  (1,090,302)   (3,160,977)
    Sales - equities.................................   1,429,224     2,763,701
  Purchases of other invested assets.................  (3,000,000)          - -
  Purchase of property and equipment.................    (706,945)     (356,555)
                                                      -----------   ------------
Net cash used in investing activities................  (3,457,066)  (35,083,148)
Financing activities
Proceeds from issuance of long term debt.............         - -    34,500,923
Purchase and subsequent retirement of common stock...  (2,602,187)          - -
Proceeds from exercise of stock options..............     137,899        41,250
                                                      -----------   -----------
Net cash (used in) provided by financing activities..  (2,464,288)   34,542,173
                                                      -----------   -----------
Net change in cash and short-term investments........     574,749     4,693,851
Cash and short-term investments at beginning
   of period.........................................   6,329,392     8,694,398
                                                      ------------  ------------
Cash and short-term investments at end of period..... $ 6,904,141   $13,388,249
                                                      ============  ============

Supplemental schedule of cash flow information
Cash paid during the period for:
    Income taxes and United States Mortgage Guaranty
      Tax and Loss Bonds.............................  $      - -   $   883,213
    Interest.........................................  $1,382,500   $       - -
</TABLE>

                             See accompanying notes.

                                       5
<PAGE>
 
                              TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 1999
                                   (Unaudited)


NOTE 1 -- THE COMPANY

     Triad Guaranty Inc. (the "Company") is a holding company which, through its
wholly-owned   subsidiary,   Triad  Guaranty  Insurance  Corporation  ("Triad"),
provides  private mortgage  insurance  coverage in the United States to mortgage
lenders to protect the lender  against  loss from  defaults on low down  payment
residential mortgage loans.


NOTE  2 -- BASIS OF PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1999
are not necessarily  indicative of the results that may be expected for the year
ending  December 31, 1999. For further  information,  refer to the  consolidated
financial  statements and footnotes  thereto included in the Triad Guaranty Inc.
annual report on form 10-K for the year ended December 31, 1998.


NOTE 3 -- CONSOLIDATION

     The consolidated  financial  statements include Triad Guaranty Inc. and its
wholly-owned  subsidiaries,  Triad  Guaranty  Insurance  Corporation  and  Triad
Guaranty  Assurance  Corporation,  a  wholly-owned  subsidiary of Triad Guaranty
Insurance  Corporation.  All significant  intercompany accounts and transactions
have been eliminated.


NOTE 4 -- COMMITMENTS AND CONTINGENT LIABILITIES

REINSURANCE - The Company assumes and cedes certain  premiums and losses from/to
reinsurers under various reinsurance  agreements.  Reinsurance  contracts do not
relieve  the  Company  from its  obligations  to  policyholders.  Failure of the
reinsurer  to honor its  obligation  could  result  in  losses  to the  Company;
consequently, allowances are established for amounts when deemed uncollectible.

                                        6
<PAGE>


                               TRIAD GUARANTY INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                 March 31, 1999
                                   (Unaudited)


INSURANCE IN FORCE,  DIVIDEND  RESTRICTIONS,  AND STATUTORY  RESULTS - Insurance
regulations  limit the writing of mortgage  guaranty  insurance  to an aggregate
amount of insured risk no greater than twenty-five  times the total of statutory
capital and surplus and the  statutory  contingency  reserve.  The amount of net
risk for  insurance  in force at March  31,  1999  and  December  31,  1998,  as
presented  below,  was  computed by applying the various  percentage  settlement
options to the insurance in force amounts based on the original  insured  amount
of the loan. Triad's ratio is as follows:



                                           March 31           December 31
                                             1999                 1998

Net risk...........................     $2,890,203,444       $2,776,205,499
                                        ==============       ==============
Statutory capital and surplus......     $   89,421,867       $   89,539,785
Statutory contingency reserve......         89,044,412           81,614,277
Total..............................     $  178,466,279       $  171,154,062
                                        ==============       ==============
Risk-to-capital ratio..............          16.2-to-1            16.2-to-1
                                        ==============       ==============


     Triad is  required  under  the  Illinois  Insurance  Code (the  "Code")  to
maintain minimum statutory capital and surplus of $5,000,000. In addition, Triad
Guaranty  Assurance  Corporation is required under the Code to maintain  minimum
capital and surplus of  $5,000,000.  The Code permits  dividends to be paid only
out of  earned  surplus  and  also  requires  prior  approval  of  extraordinary
dividends.  An extraordinary dividend is any dividend or distribution of cash or
other property the fair value of which, together with that of other dividends or
distributions  made within a period of twelve  consecutive  months,  exceeds the
greater  of  (a)  ten   percent  of   Triad's   statutory   surplus  as  regards
policyholders,  or (b)  Triad's  statutory  net  income  for the  calendar  year
preceding the date of the dividend.

     Net income as determined in accordance with statutory  accounting practices
was $8,724,920 for the three months ended March 31, 1999 and $31,252,891 for the
year ended December 31, 1998.

     At March 31, 1999 and December 31, 1998,  the amount of Triad's equity that
could be paid out in dividends to  stockholders  was $5,705,939 and  $5,823,857,
respectively,  which was the  earned  surplus of Triad on a  statutory  basis on
those dates.

                                        7

<PAGE>


                               TRIAD GUARANTY INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                 March 31, 1999
                                   (Unaudited)


     LOSS  RESERVES - The Company  establishes  loss reserves to provide for the
estimated  costs of  settling  claims  with  respect to loans  reported to be in
default and loans in default which have not been reported to the Company. Due to
the inherent  uncertainty in estimating  reserves for losses and loss adjustment
expenses,  there can be no assurance that the reserves will prove to be adequate
to cover ultimate loss development.


NOTE 5 - - EARNINGS PER SHARE

     Basic and  diluted  earnings  per share are based on the  weighted  average
daily  number of  shares  outstanding.  For  diluted  earnings  per  share,  the
denominator   includes   the   dilutive   effect   of  stock   options   on  the
weighted-average  shares  outstanding.  There  are no  other  reconciling  items
between the  denominator  used in basic earnings per share and diluted  earnings
per  share,  and the  numerator  used in basic  earnings  per share and  diluted
earnings per share is the same for all periods presented.


NOTE 6 - - COMPREHENSIVE INCOME

     Comprehensive  income is divided  into net  income and other  comprehensive
income. For the Company,  other  comprehensive  income is composed of unrealized
gains or losses on  available-for-sale  securities,  net of income tax. Prior to
adoption of this  statement,  these  amounts  were  reported  as a component  to
stockholders' equity. For the three month periods ended March 31, 1999 and 1998,
the  Company's   comprehensive   income  was  $5.2  million  and  $5.3  million,
respectively.


                                        8

<PAGE>

ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATION.


RESULTS OF OPERATIONS

     Net  income  for the first  three  months of 1999  increased  22.2% to $6.6
million  compared  to $5.4  million  in the first  three  months  of 1998.  This
improvement was primarily attributable to a 25.6% increase in earned premiums, a
20.1% increase in net  investment  income,  and $857,000 in realized  investment
gains, offset by a higher combined loss and expense ratio.

     Net income per share on a diluted  basis  increased  23.9% to $0.48 for the
first  three  months of 1999  compared  to $0.39  per share for the first  three
months of 1998.  Operating  earnings  per share were  $0.44 for the first  three
months of 1999 compared to $0.38 for the first three months of 1998, an increase
of  15.8%.   Operating  earnings  exclude  net  realized   investment  gains  of
approximately  $857,000  and  $116,000 in the first three  months 1999 and 1998,
respectively.

     Net new  insurance  written was $1.3  billion for the first three months of
1999 as compared to $860 million for the first three months of 1998, an increase
of 54.5%.  The Company also produced  approximately  $5 million of new insurance
written on seasoned  loans in the first  quarter of 1999 compared to $41 million
in the same period of 1998. The increase in new insurance written was the result
of a strong economy,  continued geographic expansion, the penetration of Triad's
products  in the  marketplace  to  both  new  and  existing  customers,  and the
introduction  of new  products.  According to industry  data,  Triad's  national
market share, which is calculated based on net new insurance written,  increased
to 2.7% for the first three  months of 1999  compared to 2.5%  reported  for the
first three months of 1998 and 2.6% for all of 1998.

     The growth in new insurance  written also  reflects the favorable  interest
rate  environment in the first three months of 1999 which caused home buying and
refinance  activities  to remain  strong.  Refinance  activity  was 39.8% of new
insurance  written in the first  three  months of 1999  compared to 34.3% in the
first three  months of 1998.  Total  direct  insurance  in force  reached  $11.7
billion  at March 31,  1999,  compared  to $9.5  billion at March 31,  1998,  an
increase of 23.7%.

     Total direct premiums written were $15.1 million for the first three months
of 1999,  an  increase of 30.6%  compared  to $11.6  million for the first three
months of 1998. Net premiums written increased by 31.0% to $14.8 million for the
first  three  months of 1999  compared  to $11.3  million for the same period in
1998.  Earned  premiums  increased  25.6% to $15.0  million  for the first three
months of 1999 from $11.9 million for the first quarter of 1998.  This growth in
written and earned premium  resulted from the increase in new insurance  written
offset  by  a  decline  in  the  Company's   persistency   rate.  The  Company's
persistency,  or the  percentage  of policies  remaining  in force from one year
prior,  was  70.6%  compared  to  73.4%  for all of  1998.  This  low  level  of


                                        9

<PAGE>


ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


persistency  can be expected to cause future  renewal  premiums to be lower than
would have been  expected,  which  would,  in turn,  have an  adverse  effect on
earnings.

     Net  investment  income for the first quarter of 1999 was $2.4  million,  a
20.1%  increase over $2.0 million for the same period in 1998.  This increase in
investment  income is the result of growth in the average book value of invested
assets by $39.0 million to $172.0 million at March 31, 1999, from $133.0 million
at March 31, 1998. The growth in average invested assets is attributable to both
the  investment  of the proceeds of the  Company's  $35.0  million debt offering
completed  in late  January  1998,  and the  increase in invested  assets due to
normal  operating cash flow. The yield on average  invested  assets  declined to
5.7% for the first three months of 1999  compared to 6.1% for the same period of
1998  reflecting the Company's  continued  investment  strategy to emphasize tax
preferred  securities which yield lower pre-tax rates than similar fully taxable
securities.  The portfolio's  tax-equivalent  yield was 7.8% for the first three
months  of both  1999 and  1998.  Approximately  70% or  $107.3  million  of the
Company's fixed maturity  portfolio at March 31, 1999, was composed of state and
municipal tax-preferred securities as compared to 67% at March 31, 1998.

     The Company's loss ratio (the ratio of incurred losses to earned  premiums)
was 19.5% for the 1999 first quarter as compared to 12.4% for the same period of
1998 and 13.3% for all of 1998. The Company's  favorable loss ratio reflects the
low level of delinquencies  compared to the number of insured loans and the fact
that approximately 79% of the Company's insurance in force was originated in the
last 36 months.  The  increase  in the loss  ratio in the first  quarter of 1999
reflects  both the higher number of reported  delinquencies  and the impact that
low persistency has had on earned premiums.  Management believes, based upon its
experience  and industry  data,  that claims  incidence for it and other private
mortgage  insurers is generally  highest in the third  through sixth years after
loan  origination.  Although the claims  experience on new insurance  written in
previous years has been quite favorable, the Company expects its incurred losses
to  increase  as a  greater  amount  of  its  insurance  in  force  reaches  its
anticipated  highest claim frequency years.  Due to the inherent  uncertainty of
future premium levels, losses, economic conditions and other factors that impact
earnings, it is impossible to predict with any degree of certainty the impact of
such higher claims frequencies on future earnings.

     During periods of  significant  refinancing  activity,  it is possible that
policies on stronger  loans may lapse and that weaker loans may remain in force,
thus  potentially  increasing  the loss  ratio on  older  business.  Substantial
increases  in  production  of new business  during these  periods can offset the
increased loss ratio on the older business.


                                       10

<PAGE>


ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


     Net losses and loss  adjustment  expenses (net of  reinsurance  recoveries)
increased by 97.3% in the first three months of 1999 to $2.9 million compared to
$1.5  million in the first three  months of 1998.  This  increase  reflects  the
growing amount of the Company's insurance in force and the resulting recognition
of a greater  amount of insurance in force  reaching its higher claim  frequency
years.

     Amortization  of deferred  policy  acquisition  costs increased by 34.9% to
$1.7 million in the first three months of 1999  compared to $1.3 million for the
first three months of 1998. The increase in amortization reflects both a growing
balance of deferred policy  acquisition  costs to amortize as the Company builds
its total  insurance  in force and a higher  cancellation  rate due to refinance
activity during the first quarter of 1999.

     In January 1998, the Company  completed a $35.0 million private offering of
notes due January  15,  2028,  which bear  interest at a rate of 7.9% per annum.
Interest  expense  relating to this debt was $692,000  for the first  quarter of
1999 compared to $477,000 for the first quarter of 1998.

     Standard & Poor's  Corporation in February 1999 affirmed the "AA" Financial
Strength and  counterparty  credit rating of Triad. In addition,  the "A" issuer
credit rating and senior debt rating of the Company were also affirmed.

     Other  operating  expenses  increased  14.9% to $3.6  million for the first
three  months of 1999 as compared  to $3.1  million for the same period in 1998.
This increase in expenses is primarily  attributable to advertising,  personnel,
facilities  and  equipment  costs  required  to support  the  Company's  product
development,   technology  enhancements,   geographic  expansion  and  increased
production.

     The expense ratio (ratio of underwriting  expenses to net premiums written)
for the first quarter of 1999 was 35.5%  compared to 38.5% for the first quarter
of 1998 and 35.4% for all of 1998.  Contributing to this improvement between the
quarterly  periods is the higher level of written  premiums in the first quarter
of 1999 partially offset by the increase in expenses.

     The effective tax rate for the first quarter of 1999 was 30.2%  compared to
30.7% in the first quarter of 1998. This decrease is primarily the result of the
increase in  investment  in tax  preferred  securities.  Management  expects the
Company's effective tax rate to remain about the same as long as yields from new
funds invested in tax-preferred securities remain favorable in relation to fully
taxable securities.


                                       11

<PAGE>

 ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  sources of operating  funds  consist  primarily of premiums
written and investment  income.  Operating cash flow is applied primarily to the
payment of claims, interest, expenses, and taxes.

     The Company generated positive cash flow from operating  activities for the
first three  months of 1999 of $6.5  million  compared  to $5.2  million for the
first three months of 1998. The increase in Triad's operating cash flow reflects
the growth in renewal  premiums and insurance  written that has more than offset
the increases in claims paid, interest, and other expenses.

     The  Company's  business  does not routinely  require  significant  capital
expenditures. Positive cash flows are invested pending future payments of claims
and expenses.  Cash flow  shortfalls,  if any,  could be funded through sales of
short term investments and other investment portfolio securities.

     The parent company's cash flow is dependent on interest income and payments
from Triad  including cash  dividends,  management  fees, and interest  payments
under surplus notes.  The insurance laws of the State of Illinois impose certain
restrictions  on dividends from Triad.  These  restrictions,  based on statutory
accounting  practices,  include requirements that dividends may be paid only out
of statutory earned surplus as of the end of the preceding fiscal year and limit
the amount of dividends  that may be paid without prior approval of the Illinois
Insurance Department.  The Illinois Insurance Department permits expenses of the
parent company to be reimbursed by Triad in the form of management fees.

     In December  1998,  the Company  announced  that its Board of Directors had
authorized  the  purchase  of up to $3.0  million of the  Company's  outstanding
Common Stock.  Through March 31, 1999, the Company had purchased  146,000 shares
of its common  stock for  approximately  $2.6  million.  The Company  funded the
purchase of these shares through the sale of invested assets.

     Consolidated  invested  assets  were  $179.7  million  at March  31,  1999,
including  $170.2  million  classified  as  available-for-sale.  Net  unrealized
investment  gains were $1.8  million on equity  securities  and $2.1  million on
fixed  maturity  securities  at March 31,  1999.  The fixed  maturity  portfolio
consisted of approximately 70% municipal  securities,  23% corporate securities,
6% U.S. government obligations, and 1% mortgage-backed bonds at March 31, 1999.


                                       12

<PAGE>


ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


     The Company's  loss reserves  increased to $14.4 million at March 31, 1999,
compared to $12.1 million at December 31, 1998. This growth is the result of the
increases in new  insurance  written and the maturing of the  Company's  risk in
force.  Consistent with industry practices,  the Company does not establish loss
reserves for future  claims on insured loans which are not currently in default.
The  Company's  reserves  per  delinquent  loan were  $20,600 at March 31, 1999,
compared to $23,400 at December 31, 1998. The Company's  delinquency  ratio, the
ratio of reported  delinquent insured loans to total insured loans, was 0.70% at
March 31, 1999, compared to 0.53% at December 31, 1998.

     The Company's  unearned  premium reserve of $6.9 million at March 31, 1999,
decreased  from $7.1  million at December  31,  1998.  This decline is primarily
attributable to the continued  production of the monthly premium product,  which
produces little unearned premium compared to annual and single premium products.
Cancellation  activity also can contribute to the decrease in unearned premiums,
whereby  older  annual  premium  policies  are  canceled  or replaced by monthly
premium policies.

     Total  stockholders'  equity increased to $140.3 million at March 31, 1999,
from $137.5 million at December 31, 1998. This increase resulted  primarily from
net  income of $6.6  million  for the  first  three  months of 1999  offset by a
decrease  in  net   unrealized   gains  on   invested   assets   classified   as
available-for-sale  of $1.4  million (net of income tax) and the  retirement  of
146,000 shares of the Company's stock purchased for $2.6 million.

     Triad's total statutory  policyholders'  surplus decreased to $89.4 million
at March 31,  1999,  from $89.5  million at December  31,  1998.  This  decrease
resulted  primarily  from  statutory  net income of $8.7 million  offset by a an
increase in the statutory  contingency reserve of $7.4 million and a decrease in
unrealized gains on equity securities of $1.2 million.  Triad's statutory earned
surplus was $5.7 million at March 31, 1999, compared to $5.8 million at December
31, 1998, reflecting growth in statutory net income greater than the increase in
the statutory  contingency reserve offset by the decrease in unrealized gains in
equity  securities.  Approximately  $780,000 and $1.9  million of the  statutory
earned  surplus for March 31, 1999,  and December  31, 1998,  respectively,  was
attributable  to  unrealized  gains.  The balance in the  statutory  contingency
reserve  was $89.0  million  at March 31,  1999,  compared  to $81.6  million at
December 31, 1998.

     The  Company is  undertaking  modifications  and  upgrades  to enhance  its
computer systems and  technological  capabilities.  The Company expects to incur
between   $3.0  to  $4.0  million  for  this  system   conversion   and  upgrade
(approximately  $2.2  million in  capitalized  costs have been  incurred for the
project  through  March 31,  1999) and is funding the project  through cash flow
from operations.


                                       13

<PAGE>


ITEM 2.        MANAGEMENT'S DISCUSSION AND ANALYSIS OF
               FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED


     All of the Company's  existing  computer  systems which are integral to its
business  were   originally   developed  to  be  year  2000  compliant  or  were
reprogrammed to be compliant. The Company completed its testing during the first
quarter of 1999 and based on this testing the Company  believes that it does not
have material  exposure  relating to the year 2000 compliance  issue.  Year 2000
compliance  costs  relating to the  Company's  existing  computer  systems  were
expensed as incurred and are immaterial.  Some of the Company's computer systems
integral to its  business  interface  with  computer  systems of third  parties.
Virtually  all  transactions  with  systems  operated by third  parties  involve
nationally recognized service bureaus and government-sponsored  entities such as
Freddie Mac and Fannie  Mae.  The  Company  worked  with these third  parties to
coordinate necessary testing of year 2000 related system interfaces. As a result
of this  testing,  the Company  does not  anticipate  that year 2000  compliance
issues arising from  interfaces  with  third-party  systems will have a material
adverse impact on its operations.

     Triad's  ability  to write  insurance  depends  on the  maintenance  of its
claims-paying  ability  ratings  and the  adequacy of its capital in relation to
risk in force. A significant  reduction of capital or a significant  increase in
risk may impair  Triad's  ability  to write  additional  insurance.  A number of
states also  generally  limit Triad's  risk-to-capital  ratio to 25-to-1.  As of
March 31,  1999,  and  December  31,  1999,  Triad's  risk-to-capital  ratio was
16.2-to-1 as compared to  17.8-to-1  for the industry as a whole at December 31,
1997, the latest industry data available.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     Management's  Discussion  and  Analysis  and this  Report  contain  forward
looking statements relating to future plans, expectations, and performance which
involve  various  risks and  uncertainties,  including  but not  limited  to the
following:  interest  rates may  increase  from their  current  levels;  housing
transactions  and mortgage  issuance  may  decrease  for many reasons  including
changes in interest rates or economic conditions; the Company's market share may
change as a result of changes in underwriting  criteria or competitive  products
or rates;  the amount of new  insurance  written could be affected by changes in
federal  housing   legislation,   including   changes  in  the  Federal  Housing
Administration  loan limits and coverage  requirements of Freddie Mac and Fannie
Mae;  rating  agencies may revise  methodologies  for  determining the Company's
claims-paying ability ratings and may revise or withdraw the assigned ratings at
any time;  decreases in persistency,  which are affected by loan refinancings in
periods of low  interest  rates,  may have an adverse  effect on  earnings;  the
Company's  performance  may be  impacted  by changes in the  performance  of the
financial markets and general economic conditions. Economic downturns in regions
where Triad's risk is more concentrated could have a particularly adverse effect
on Triad's financial condition and loss development. Accordingly, actual results
may differ from those set forth in the forward- looking statements. Attention is
also directed to other risk factors set forth in documents  filed by the Company
with the Securities and Exchange Commission.

                                       14

<PAGE>





PART II

         ITEM 1.  LEGAL PROCEEDINGS - NONE

         ITEM 2.  CHANGES IN SECURITIES - NONE

         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES - NONE

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS - NONE

         ITEM 5.  OTHER INFORMATION - NONE

         ITEM 6.  A.  EXHIBITS

                       Exhibit                        Description
                       -------                        -----------
                          27                     Financial Data Schedule

                  B.  REPORTS ON FORM 8-K - NONE






                                   SIGNATURES

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

                                           TRIAD GUARANTY INC.


Date: May 14, 1999
                                           /s/ Michael R. Oswalt 
                                           --------------------- 
                                           Michael R. Oswalt
                                           Vice President and Controller,
                                           Principal Accounting Officer




                                       15