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 September 30, 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 November 1,
1999: 13,302,194 shares.


<PAGE>

                               TRIAD GUARANTY INC.

                                      INDEX
                                                                            Page
                                                                          Number
                                                                          ------
Part I. Financial Information:

    Item 1. Financial Statements:

    Consolidated Balance Sheets as of September 30, 1999 (Unaudited)
             and December 31, 1998.............................................3

    Consolidated Statements of Income for the Three and Nine Month
             Periods Ended September 30, 1999 and 1998 (Unaudited).............4

    Consolidated Statements of Cash Flow for the Nine Month
             Periods Ended September 30, 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..................................17

    Signatures........................................................... ....17


                                        2

<PAGE>
                               TRIAD GUARANTY INC.
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                      September 30,     December 31,
                                                           1999             1998
                                                       -------------   -------------
                                                         Unaudited)
<S>                                                    <C>             <C>
Assets
Invested assets:
Fixed maturities, available-for-sale, at fair value .. $ 160,336,320   $ 157,391,829
Equity securities, available-for-sale, at fair value..    15,737,966      14,024,012
Short-term investments................................     7,318,511       5,885,192
Other invested assets.................................     3,092,883              --
                                                       -------------   -------------
                                                         186,485,680     177,301,033

Cash..................................................        25,471         444,200
Real estate acquired in settlement of claims..........       145,515             ---
Accrued investment income.............................     2,656,857       2,258,878
Deferred policy acquisition costs.....................    18,983,140      16,015,559
Prepaid federal income tax............................    32,130,666      25,256,666
Property and equipment................................     5,355,127       3,446,656
Prepaid reinsurance premium...........................         8,938          14,703
Reinsurance recoverable...............................        39,252         610,817
Other assets..........................................     6,481,168       5,163,924
                                                       -------------   -------------
Total assets.......................................... $ 252,311,814   $ 230,512,436
                                                       =============   =============

Liabilities and stockholders' equity
Liabilities:
    Losses and loss adjustment expenses............... $  14,937,294   $  12,142,990
    Unearned premiums.................................     7,071,916       7,054,737
    Current taxes payable.............................        57,867          45,787
    Deferred income taxes.............................    39,297,649      33,187,544
    Unearned ceding commission........................       434,603         621,161
    Long-term debt....................................    34,460,717      34,457,080
    Accrued interest on debt..........................       583,722       1,274,972
    Accrued expenses and other liabilities............     4,944,750       4,196,825
                                                       -------------   -------------
Total liabilities.....................................   101,788,518      92,981,096
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; 13,300,194
      shares issued and outstanding at September 30,
      1999 and 13,408,869 at December 31, 1998........       133,002         134,089
    Additional paid-in capital........................    61,814,636      61,538,613
    Accumulated other comprehensive income, net
      of income tax liability (benefit) of
      ($1,400,129) at September 30, 1999 and
      $2,101,170 at December 31, 1998.................    (2,594,491)      3,907,920
    Deferred compensation.............................       (78,091)            ---
    Retained earnings.................................    91,248,240      71,950,718
                                                       -------------  --------------
Total stockholders' equity............................   150,523,296     137,531,340
                                                       -------------  --------------
Total liabilities and stockholders' equity............ $ 252,311,814   $ 230,512,436
                                                       =============  ==============
</TABLE>
                             See accompanying notes

                                        3
<PAGE>
                               TRIAD GUARANTY INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)

<TABLE>
<CAPTION>

                                                         Three Months Ended                 Nine Months Ended
                                                            September 30                       September 30
                                                     ----------------------------    ---------------------------
                                                          1999           1998            1999           1998
                                                          ----           ----            ----           ----
<S>                                                   <C>             <C>            <C>            <C>
Revenue:
Premiums written:
   Direct........................................... $ 17,033,429    $ 13,681,365    $ 48,086,566   $ 38,017,064
   Assumed..........................................        4,238           1,335          13,547         10,262
   Ceded............................................     (402,691)       (310,979)     (1,125,533)      (788,451)
                                                     ------------    ------------    ------------   ------------
Net premiums written................................   16,634,976      13,371,721      46,974,580     37,238,875
Change in unearned premiums.........................     (130,101)        284,247         (22,944)     1,006,197
                                                     -------------  -------------    ------------   ------------
Earned premiums.....................................   16,504,875      13,655,968      46,951,636     38,245,072
Net investment income...............................    2,657,110       2,424,083       7,743,336      6,788,337
Realized investment gains...........................      (33,890)        307,812         998,350        582,076
Other income........................................        3,500           8,609          12,944          9,648
                                                     -------------  -------------    ------------   ------------
                                                       19,131,595      16,396,472      55,706,266     45,625,133
Losses and expenses:
Losses and loss adjustment expenses.................    1,525,266       1,714,629       5,801,207      4,297,145
Reinsurance recoveries..............................       (6,651)          1,508         (12,551)         2,991
                                                     -------------  -------------    ------------   ------------
Net losses and loss adjustment expenses.............    1,518,615       1,716,137       5,788,656      4,300,136
Interest expense on debt............................      692,487         692,388       2,087,404      1,861,578
Amortization of deferred policy acquisition costs...    1,744,618       1,553,379       5,213,879      4,188,705
Other operating expenses (net)......................    3,815,904       3,177,927      11,094,387      9,515,458
                                                     -------------  -------------    ------------   ------------
                                                        7,771,624       7,139,831      24,184,326     19,865,877
                                                     -------------  -------------    ------------   ------------
Income before income taxes..........................   11,359,971       9,256,641      31,521,940     25,759,256
Income taxes:
   Current..........................................       (2,144)            - -          12,286            426
   Deferred.........................................    3,488,049       2,793,250       9,611,404      7,867,488
                                                     -------------  -------------    ------------   ------------
                                                        3,485,905       2,793,250       9,623,690      7,867,914
                                                     -------------  -------------    ------------   ------------
Net income..........................................  $ 7,874,066     $ 6,463,391    $ 21,898,250   $ 17,891,342
                                                     =============  =============    ============   ============

Earnings per common and
   common equivalent share:
   Basic............................................      $.59           $.48             $1.64          $1.34
                                                     =============  =============    ============   ============
   Diluted..........................................     $.58            $.47             $1.61          $1.29
                                                     =============  =============    ============   ============
Shares used in computing earnings per
   common and common equivalent share:
   Basic............................................   13,296,118      13,358,409      13,315,470     13,325,656
                                                     =============  =============    ============   ============
   Diluted..........................................   13,633,130      13,854,330      13,632,235     13,864,865
                                                     =============  =============    ============   ============
</TABLE>

                             See accompanying notes.


                                        4

<PAGE>

                               TRIAD GUARANTY INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                Nine Months Ended
                                                                   September 30
                                                          ----------------------------
                                                             1999             1998
                                                             ----             ----
<S>                                                        <C>            <C>
Operating activities
Net income................................................ $ 21,898,250   $ 17,891,342
Adjustments to reconcile net income to net
 cash provided by operating activities:
   Loss and unearned premium reserves.....................    2,811,483        562,644
   Accrued expenses and other liabilities.................      544,629        440,186
   Current taxes payable..................................       12,080              4
   Accrued investment income..............................     (490,862)      (871,976)
   Policy acquisition costs deferred......................   (8,181,460)    (6,260,854)
   Amortization of policy acquisition costs...............    5,213,879      4,188,705
   Net realized investment gains .........................     (998,350)      (582,076)
   Provision for depreciation.............................      539,757        560,815
   Amortization of intangible assets......................       45,443         34,795
   Accretion of discount on investments...................     (788,322)      (739,867)
   Deferred income taxes..................................    9,611,404      7,784,970
   Prepaid federal income taxes...........................   (6,874,000)    (6,979,300)
   Accrued interest on debt...............................     (691,250)       583,722
   Real estate acquired in claim settlement...............     (145,515)       141,999
   Other assets...........................................     (687,457)    (1,464,865)
                                                           ------------   ------------
Net cash provided by operating activities.................   21,819,709     15,290,244
Investing activities
  Securities available-for-sale:
    Purchases - fixed maturities..........................  (36,005,234)   (63,482,701)
    Sales - fixed maturities..............................   24,185,777     10,760,774
    Purchases - equities..................................   (4,095,139)    (5,119,678)
    Sales - equities......................................    2,989,878      4,677,949
  Purchase of other invested assets.......................   (3,000,000)            --
  Purchase of property and equipment......................   (2,450,488)    (1,134,700)
                                                           ------------   ------------
Net cash used in investing activities.....................  (18,375,206)   (54,298,356)
Financing activities
Proceeds from issuance of long-term debt..................           --     34,477,899
Purchase and subsequent retirement of common stock........   (2,602,187)            --
Proceeds from exercise of stock options...................      172,274        750,656
                                                           ------------   ------------
Net cash provided by financing activities.................   (2,429,913)    35,228,555
                                                           ------------   ------------
Net change in cash and short-term investments.............    1,014,590     (3,779,557)
Cash and short-term investments at beginning of period....    6,329,392      8,694,399
                                                           ------------   ------------
Cash and short-term investments at end of period.......... $  7,343,982   $  4,914,842
                                                           ============   ============
Supplemental schedule of cash flow information
 Cash paid during the period for:
   Income taxes and United States Mortgage
     Guaranty Tax and Loss Bonds.......................... $  6,874,205   $  6,979,726
   Interest............................................... $  2,775,017   $  1,274,972
Non-cash investing and finance activities:
   Exchange of restricted common stock for
     intangible asset..................................... $         --   $   298,125
</TABLE>

                             See accompanying notes.

                                       5
<PAGE>

                               TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 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 and nine month  periods  ended
September  30, 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.

     Certain  prior year  amounts  have been  reclassified  to conform  with the
current year presentation.  Specifically, the purchase of United States Mortgage
Guaranty  Tax and Loss Bonds have been treated as prepaid  federal  income taxes
and a reclassification  has been made to include this prepaid federal income tax
in the balance sheet as an asset and to restate the  corresponding  deferred tax
liability. The payment for the tax and loss bonds is essentially a prepayment of
federal  income  taxes that will become due at a later date.  The change had the
effect of increasing  both assets and  liabilities by $32.1 million at September
30, 1999 and $25.3 million at December 31, 1998.  The  reclassifications  had no
effect on previously reported net income or stockholders' equity.


NOTE 3 -- CONSOLIDATION

     The consolidated financial statements include the amounts of Triad Guaranty
Inc. and its wholly-owned subsidiaries, Triad Guaranty Insurance Corporation and
Triad  Guaranty  Assurance  Corporation,  a  wholly-owned  subsidiary  of  Triad

                                        6

<PAGE>

                               TRIAD GUARANTY INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                               September 30, 1999
                                   (Unaudited)

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.

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 September  30, 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:



                                  September 30,           December 31
                                       1999                  1998

Net risk........................     $ 3,116,617,618        $2,776,205,499
                                     ================       ==============
Statutory capital and surplus...     $    93,329,426        $   89,539,785
Statutory contingency reserve...         105,211,136            81,614,277
                                     ---------------        --------------
Total...........................     $   198,540,562        $  171,154,062
                                     ================       ==============
Risk-to-capital ratio...........         15.7-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

                                        7

<PAGE>


                               TRIAD GUARANTY INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                               September 30, 1999
                                   (Unaudited)

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 $29,136,854 for the nine months ended September 30, 1999 and $31,252,891 for
the year ended December 31, 1998.

     At September 30, 1999 and December 31, 1998,  the amount of Triad's  equity
that  could  be  paid  out in  dividends  to  stockholders  was  $9,613,498  and
$5,823,857,  respectively,  which was the earned surplus of Triad on a statutory
basis on those dates.

     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 September 30, 1999 and
1998,  the  Company's  comprehensive  income was $5.3 million and $6.2  million,
respectively.  For the nine month periods ended September 30, 1999 and 1998, the
Company's   comprehensive   income  was  $15.4   million   and  $17.5   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  nine  months of 1999  increased  22.4% to $21.9
million  compared to $17.9 million in the first nine months of 1998.  Net income
for the third quarter of 1999 increased  21.8% to $7.9 million  compared to $6.5
million  for  the  third  quarter  of  1998.  This   improvement  was  primarily
attributable  to a  22.8%  (20.9%  in the  third  quarter)  increase  in  earned
premiums, a 14.1% (9.6% in the third quarter) increase in net investment income,
$1.0  million  in  realized  investment  gains,  a  favorable  loss ratio and an
improved expense ratio.

     Net income per share on a diluted  basis  increased  24.5% to $1.61 for the
first nine months of 1999  compared to $1.29 per share for the first nine months
of 1998.  Net  income  per share for the  third  quarter  of 1999 was $0.58 on a
diluted basis compared to $0.47 per share for the same period of 1998. Operating
earnings  per share  were $1.56 for the first nine  months of 1999  compared  to
$1.26 for the  first  nine  months  of 1998,  an  increase  of 23.4%.  Operating
earnings exclude net realized investment gains of approximately $1.0 million and
$582,000 in the first nine months of 1999 and 1998, respectively.

     Net new  insurance  written  was $3.5  billion for the first nine months of
1999 as compared to $3.3 billion for the first nine months of 1998,  an increase
of 8.0%. For the third quarter,  net new insurance  written totaled $1.1 billion
in  1999   compared  to  $1.2  billion  in  1998.   The  Company  also  produced
approximately  $11 million of new  insurance  written on  seasoned  loans in the
first nine months of 1999  compared to $186  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,  was 2.4% for the  first  nine
months of 1999  compared to 2.5%  reported for the first nine months of 1998 and
2.6% for all of 1998.

     Refinance  activity  was 28.3% of new  insurance  written in the first nine
months of 1999  compared  to 30.6% in the first nine  months of 1998.  Refinance
activity  represents  15.2% of new  insurance  written in the third quarter 1999
compared to 24.8% for the third quarter 1998. This decline in refinance activity
reflects the recent rise in mortgage  interest rates.  Total direct insurance in
force reached $12.6 billion at September 30, 1999,  compared to $10.5 billion at
September 30, 1998, an increase of 19.8%.

     Total direct premiums  written were $48.1 million for the first nine months
of 1999,  an  increase  of 26.5%  compared  to $38.0  million for the first nine
months of 1998.  Total  direct  premiums  written  increased  24.5% in the third
quarter of 1999  compared to the third  quarter of 1998.  Net  premiums  written
increased by 26.1% to $47.0  million for the first nine months of 1999  compared

                                        9

<PAGE>


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

to $37.2 million for the same period in 1998. Net premiums written for the third
quarter of 1999 increased  24.4%  compared to the third quarter of 1998.  Earned
premiums increased 22.8% to $47.0 million for the first nine months of 1999 from
$38.2 million for the first nine months of 1998.  For the third quarter of 1999,
earned premiums increased 20.9% compared to the same period 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 insurance  remaining in force from one year
prior,  was 68.0% at September 30, 1999,  compared to 70.0% at December 31, 1998
and 73.8% at September  30,  1998.  Persistency  for the quarter  improved to an
annualized  rate of 79.6%  reflecting  the  trend of rising  interest  rates and
declining cancellations.

     Net investment income for the first nine months of 1999 was $7.7 million, a
14.1%  increase  over $6.8 million for the same period in 1998.  Net  investment
income for the third quarter of 1999 was $2.7 million,  a 9.6% increase over the
third  quarter of 1998.  This  increase  in  investment  income is the result of
growth in the average book value of invested  assets by $33.5  million to $180.3
million at September 30, 1999,  from $146.8  million at September 30, 1998.  The
growth in average invested assets is attributable to normal operating cash flow.
The yield on average  invested assets declined to 5.7% for the first nine months
of 1999  compared to 6.2% 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 nine months of 1999 and 7.9% for the
first nine months of 1998.  Approximately 73% or $120.7 million of the Company's
fixed  maturity  portfolio  at  September  30,  1999,  was composed of state and
municipal tax-preferred securities as compared to 69% at September 30, 1998.

     The Company's loss ratio (the ratio of incurred losses to earned  premiums)
was 12.3% for the first nine  months of 1999 as  compared  to 11.2% for the same
period of 1998 and 13.3% for all of 1998.  The loss ratio was 9.2% for the third
quarter of 1999 compared to 12.6% for the third  quarter 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.  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.


                                       10

<PAGE>


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

     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.

     Net losses and loss  adjustment  expenses (net of  reinsurance  recoveries)
increased by 34.6% in the first nine months of 1999 to $5.8 million  compared to
$4.3  million in the first nine months of 1998.  Net losses and loss  adjustment
expenses  for the third  quarter  of 1999 and 1998 were  $1.5  million  and $1.7
million,  respectively. The year-to-date 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 24.5% to
$5.2  million in the first nine months of 1999  compared to $4.2 million for the
first nine months of 1998.  These costs were $1.7 million for the third  quarter
of 1999  compared to $1.6 for the third  quarter of 1998,  an increase of 12.3%.
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 nine
months of 1999.

     Other  operating  expenses  increased  16.6% to $11.1 million for the first
nine months of 1999 as compared to $9.5 million for the same period in 1998. For
the third quarter of 1999,  other operating  expenses  increased to $3.8 million
from $3.2  million in the third  quarter of 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 nine months of 1999 was 34.7% compared to 36.8% for the first nine
months  of 1998 and  35.4%  for all of 1998.  The  expense  ratio  for the third
quarter  of  1999  improved  to  33.4%  from  35.4%  reported  a  year  earlier.
Contributing to this  improvement is the higher level of written premiums in the
first nine months of 1999 partially offset by the increase in expenses.

     The  effective  tax rate for the  first  nine  months  of 1999 and 1998 was
30.5%.  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 OPERATIONS - 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 nine months of 1999 of $21.8  million  compared  to $15.3  million for the
first nine 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   other  than  for   enhancements  to  its  computer   systems  and
technological  capabilities.  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.

     Consolidated  invested  assets were $186.5  million at September  30, 1999,
including  $176.1  million  classified  as  available-for-sale.  Net  unrealized
investment  gains were $2.1  million  on equity  securities  and net  unrealized
investment  losses were $6.0 million on fixed  maturity  securities at September
30, 1999. The fixed maturity portfolio  consisted of approximately 73% municipal
securities,  22% corporate securities,  4% U.S. government  obligations,  and 1%
mortgage-backed bonds at September 30, 1999.

     The  purchase of United  States  Mortgage  Guaranty Tax and Loss bonds have
been treated as prepaid federal income taxes. The company began classifying this
prepaid  federal  income tax in the balance  sheet as an asset and  restated the
corresponding  deferred tax  liability as of September 30, 1999 and December 31,
1998.  The payment for the tax and loss bonds is  essentially  a  prepayment  of
federal income taxes that will become due at a later date. The


                                       12

<PAGE>


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

change had the effect of increasing both assets and liabilities by $32.1 million
at September 31, 1999 and $25.3 million at December 31, 1998.

     The  Company's  loss  reserves  increased to $14.9 million at September 30,
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 $21,600 at September
30, 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 0.65% at September 30, 1999, compared to 0.53% at December 31, 1998.

     Total  stockholders'  equity  increased to $150.5  million at September 30,
1999, from $137.5 million at December 31, 1998. This increase resulted primarily
from net income of $21.9  million  for the first nine months of 1999 offset by a
decrease  in  net   unrealized   gains  on   invested   assets   classified   as
available-for-sale  of $6.5  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 increased to $93.3 million
at September 30, 1999,  from $89.5  million at December 31, 1998.  This increase
resulted  primarily  from  statutory  net income of $29.1  million  offset by an
increase  in  the  statutory  contingency  reserve  of  $23.6  million.  Triad's
statutory  earned  surplus was $9.6 million at September  30, 1999,  compared to
$5.8 million at December 31, 1998, reflecting growth in statutory net income and
unrealized gains on equity securities greater than the increase in the statutory
contingency reserve. Approximately $1.3 and $1.9 million of the statutory earned
surplus for  September  30,  1999,  and December  31,  1998,  respectively,  was
attributable  to  unrealized  gains.  The balance in the  statutory  contingency
reserve was $105.2  million at September 30, 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
approximately $4.5 million for this system conversion and upgrade (approximately
$3.7 million in  capitalized  costs have been  incurred for the project  through
September  30,  1999)  and  is  funding  the  project  through  cash  flow  from
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
September 30, 1999,  and December 31, 1998,  Triad's  risk-to-capital  ratio was
15.7-to-1 and 16.2-to-1, respectively, as compared to 14.8-to-1 for the industry
as a whole at December 31,1998, the latest industry data available.

                                       13

<PAGE>


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


YEAR 2000 ISSUE

     The Company is  dependent  on processes  that have been  automated  and are
completely  handled by  computers.  In the past,  some  computer  programs  were
written  using only two digits to  identify a year in the date  field.  Although
this has worked well it could present  problems as companies  move into the year
2000 due to the fact that the two digits "00" may be read as "1900"  rather than
"2000".  This technical  problem may cause  computer  programs to fail or create
erroneous results.

     In 1997, the Company began conducting a review and analysis of all computer
hardware and software and created a plan to address potential  problems relating
to Year 2000  concerns.  Due to the fact that Triad began  operations  less than
twelve years ago, the Company's  hardware and software  represent,  for the most
part, relatively new technology. As computer programs have been created, in many
cases,  programmers  have had the  foresight  to  include a 4-digit  year.  Many
programs  and   equipment   have  only  recently  been  added  to  the  existing
configuration.  The Company has concluded its  assessment of potential Year 2000
issues  and  believes  that its  internal  exposure  to Year 2000  concerns  are
minimal.

     STATE OF READINESS.  The Company defines 'Year 2000 Compliant' to mean that
hardware and  software  will  continue to work  accurately  and without  failure
before,  during  and after the date  changes  to  January  1, 2000 with  neither
functionality  nor performance  being affected by the date change.  With this as
the Company's  goal,  the plan developed to ensure that the Company is Year 2000
compliant has six major steps:  1) define  possible  problem areas,  2) research
potential  issues,  3)  make  corrections,  4)  conduct  preliminary  tests,  5)
implement final changes, 6) review and complete testing. As a part of this plan,
the Company  maintains  communication  with its strategic  business partners and
customers to advise of its progress and subsequent  completion of its compliance
testing.

     The first step involves  identifying every aspect of the Company's business
that may be computerized  or may interface with a process that is  computerized.
Research  includes  contacting  hardware  and software  vendors/suppliers.  Each
vendor/supplier  has been required to present  evidence of Year 2000  compliance
for all hardware and software  licensed for use by the Company.  In a few cases,
the Company's  equipment was not compliant and  replacements/upgrades  have been
initiated.

     In late 1997, the Company began testing its operating software and programs
written  in-house.  The  review of this  internal  software  was  completed  and
modifications  were made and tested. The Company has worked with all interfacing
partners and customers to test both Triad's changes and the changes  implemented
by its business  partners and customers.  Telecommunication  equipment and other
peripherals  not  normally  associated  with  computer  systems  have  also been


                                       14

<PAGE>


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

verified and tested. The Company has complied with requirements put forth by the
government sponsored  enterprises ("GSEs") and has been an active participant in
the MBA Year 2000 Readiness Project. As a result of the testing and reviews, the
Company believes that its major systems are Year 2000 compliant.

     COSTS.  For the most part,  the Company's  existing  computer  systems were
originally  developed  to be Year  2000  compliant.  The  current  hardware  and
software have not required a significant overhaul to become Year 2000 compliant.
As part of the  Company's  Year 2000  compliance  plan,  internal  personnel and
outside  resources  were used to address the  identified  hardware  and software
issues  necessary  to  ensure  compliance.  Expenses  relating  to the Year 2000
compliance testing are expensed as incurred and are immaterial.

     RISKS.  Should any of the Company's  efforts to become Year 2000  compliant
prove to be  inadequate  or  ineffective,  possible  interruptions  to  critical
business operations could occur. Many of the critical business functions involve
processes that can be accomplished through multiple methods. While the Company's
primary method of operation  involves the transmission and receipt of electronic
data,  it also has the  capability  to handle  most of its  processes  manually.
Should there be a Year 2000 problem with the  electronic  transmission  process,
the Company expects that it would be able to substitute  manual processing until
the  electronic  means  could  be  recovered.   For  instance,  loan  and  claim
submissions  are  primarily  non-electronic.  All internal  processes  have been
thoroughly tested; however,  should a problem occur,  non-complex subsystems are
available which should allow for quick recovery. The Company's internal analysts
and  developers  who have been integral in the testing of the Company's  systems
are expected to be available to assist in handling any disruptions.  The Company
also relies on many external  parties to provide critical pieces to its business
functions.  Although these external  parties have verified their individual Year
2000 compliance,  the Company could  potentially be adversely  affected if their
computer systems are disrupted by the Year 2000 problem.

     Contingency Plans. The Company's  contingency plan is designed to limit, as
much as possible,  the disruption that a failure  relating to Year 2000 concerns
could cause. The Company is assessing all critical business functions,  weighing
whether or not each can be delayed,  and  prioritizing  their  degree of impact.
Because the Company's business processes go well beyond the automated functions,
all employees are involved in the contingency  planning process.  As part of the
contingency plan, the Company is performing employee skill assessments, updating
documentation,  cross  training  employees  and  developing  methods to manually
handle  processes  that may fail  electronically.  Special  Year  2000  employee
guidelines   are  being   created  to  convey  to  all  Company   employees  the
expectations,  responsibilities,  and authority levels necessary. The Company is
also  reviewing  alternate   communication  methods  and  reevaluating  security
measures of current systems. The Company's  development,  testing and assessment
of its contingency plan will continue through 1999.


                                       15

<PAGE>


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

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.


                                       16

<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 No.                     Description
                       -----------                     -----------
                           27                    Financial Data Schedule



                                   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: November 12, 1999
                                             /s/ Michael R. Oswalt
                                             -------------------------
                                             Michael R. Oswalt
                                             Vice President and Controller,
                                             Principal Accounting Officer



                                       17