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 June 30, 1998

                                       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 August 3,
1998: 13,344,138 shares.


<PAGE>

                               TRIAD GUARANTY INC.

                                      INDEX
                                                                            Page
                                                                          Number
Part I. Financial Information:

    Item 1. Financial Statements:

    Consolidated Balance Sheets as of June 30, 1998 (Unaudited)
         and December 31, 1997................................................3

    Consolidated Statements of Income for the Three and Six Month
         Periods Ended June 30, 1998 and 1997 (Unaudited).....................4

    Consolidated Statements of Cash Flow for the Six Month
         Periods Ended June 30, 1998 and 1997 (Unaudited).....................5

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

    Item 2. Management's Discussion and Analysis of Financial Condition
         and Results of Operations...........................................10

Part II. Other Information:

    Item 2. Changes in Securities............................................17

    Item 4. Submission of Matters to a Vote of Security Holders..............17

    Item 6. Exhibits and Reports on Form 8-K.................................17

    Signatures...............................................................18












                                        2
<PAGE>

                               TRIAD GUARANTY INC.
                           CONSOLIDATED BALANCE SHEETS


                                                    June 30,       December 31,
                                                      1998             1997
                                                ---------------   --------------
Assets                                             (Unaudited)
Invested assets:
  Securities available-for-sale, at fair value:
    Fixed maturities ...........................  $ 147,390,960   $   99,725,487
    Equity securities...........................     11,848,132       11,466,028
  Short-term investments........................      5,075,676        8,685,842
                                                ---------------   --------------
                                                  $ 164,314,768    $ 119,877,357

Cash............................................          2,663            8,557
Accrued investment income.......................      2,073,511        1,460,168
Deferred policy acquisition costs...............     13,861,594       12,587,355
Property and equipment..........................      2,901,649        2,524,228
Prepaid reinsurance premium.....................         17,339           23,263
Reinsurance recoverable.........................         44,432           49,447
Other assets....................................      3,465,500        2,448,685
                                                ---------------   --------------
Total assets....................................  $ 186,681,456    $ 138,979,060
                                                ===============   ==============

Liabilities and stockholders' equity
Liabilities:
    Losses and loss adjustment expenses......... $    9,925,980   $    8,960,411
    Unearned premiums...........................      7,260,468        7,988,342
    Current taxes payable.......................          3,322            3,318
    Deferred income taxes.......................      7,586,700        7,521,874
    Long term debt..............................     34,493,752              - -
    Accrued interest on debt....................      1,167,444              - -
    Accrued expenses and other liabilities......      2,659,276        2,724,324
                                                ---------------   --------------
Total liabilities...............................     63,096,942       27,198,269
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; 13,326,222
      shares issued and outstanding at June 30, 
      1998 and 13,293,721 at December 31, 1997..        133,262          132,937
    Additional paid-in capital..................     59,852,186       59,369,223
    Accumulated other comprehensive income, 
      net of income tax liability of $2,311,105 
      at June 30, 1998 and $2,368,998 at 
      December 31, 1997.........................      4,297,799        4,405,315
    Retained earnings...........................     59,301,267       47,873,316
                                                ---------------   --------------
Total stockholders' equity......................    123,584,514      111,780,791
                                                ---------------   --------------
Total liabilities and stockholders' equity...... $  186,681,456    $ 138,979,060
                                                ===============   ==============

                             See accompanying notes

                                       3
<PAGE>

                              TRIAD GUARANTY INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)


<TABLE>
<CAPTION>
                                                       Three Months Ended            Six Months Ended
                                                             June 30                      June 30
                                                   ------------------------    --------------------------
                                                        1998         1997           1998         1997
                                                        ----         ----           ----         ----
<S>                                                <C>           <C>           <C>           <C>         
Revenue:
Premiums written:

   Direct..........................................$ 12,765,965  $ 9,653,077   $ 24,335,699  $ 17,547,145
   Assumed.........................................       3,106       10,014          8,927        16,054
   Ceded...........................................    (236,972)    (535,109)      (477,471)   (1,056,713)
                                                   ------------  -----------   ------------  ------------
Net premiums written...............................  12,532,099    9,127,982     23,867,155    16,506,486
Change in unearned premiums........................     126,749     (143,248)       721,949       327,132
                                                   ------------  -----------   ------------  ------------
Earned premiums....................................  12,658,848    8,984,734     24,589,104    16,833,618
Net investment income..............................   2,325,686    1,501,664      4,364,254     2,973,579
Realized investment gains..........................     158,750        6,732        274,264         5,851
Other income.......................................         569        3,367          1,039         6,030
                                                   ------------  -----------   ------------  ------------
                                                     15,143,853   10,496,497     29,228,661    19,819,078
Losses and expenses:
Losses and loss adjustment expenses................   1,102,813    1,142,592      2,582,517     2,384,138
Reinsurance recoveries.............................       3,955      (52,696)         1,483       (98,392)
                                                   ------------  -----------   ------------  ------------
Net losses and loss adjustment expenses............   1,106,768    1,089,896      2,584,000     2,285,746
Interest expense on debt...........................     692,302         - -       1,169,190         - -
Amortization of deferred policy acquisition costs..   1,362,618      984,388      2,635,326     1,957,443
Other operating expenses (net).....................   3,246,071    2,545,600      6,337,531     4,667,363
                                                   ------------  -----------   ------------  ------------
                                                      6,407,759    4,619,884     12,726,047     8,910,552
                                                   ------------  -----------   ------------  ------------
Income before income taxes.........................   8,736,094    5,876,613     16,502,614    10,908,526
Income taxes:
   Current.........................................         213        1,710            426         2,168
   Deferred........................................   2,691,127    1,841,704      5,074,238     3,426,270
                                                   ------------  -----------   ------------  ------------
                                                      2,691,340    1,843,414      5,074,664     3,428,438
                                                   ------------  -----------   ------------  ------------
Net income.........................................$  6,044,754  $ 4,033,199   $ 11,427,950  $  7,480,088
                                                   ============  ===========   ============  ============

Earnings per common and
   common equivalent share:
   Basic...........................................    $.45          $.30          $.86          $.56
                                                   ============  ===========   ============  ============
   Diluted.........................................    $.44          $.30          $.82          $.55
                                                   ============  ===========   ============  ============
Shares used in computing earnings per
   common and common equivalent share:
   Basic...........................................  13,313,901  13,290,722     13,307,755     13,290,722
                                                   ============ ===========    ============  ============
   Diluted.........................................  13,866,624  13,660,199     13,868,608     13,640,617
                                                   ============ ===========    ============  ============
</TABLE>

                             See accompanying notes.

                                        4
<PAGE>

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

                                                        Six Months Ended
                                                             June 30
                                                   --------------------------
                                                       1998           1997
Operating activities
Net income........................................ $11,427,950    $ 7,480,088
Adjustments to reconcile net income to net
  cash provided by operating activities:
   Loss and unearned premium reserves.............     237,695        846,266
   Accrued expenses and other liabilities.........     (44,140)      (221,549)
   Current taxes payable..........................           4          1,726
   Accrued investment income......................    (613,343)      (227,777)
   Policy acquisition costs deferred..............  (3,909,565)    (2,668,677)
   Amortization of policy acquisition costs.......   2,635,326      1,957,443
   Net realized investment gains .................    (274,264)        (5,851)
   Provision for depreciation.....................     408,371        278,241
   Accretion of discount on investments...........    (456,009)      (304,510)
   Deferred income taxes..........................     122,720      1,027,270
   Accrued interest on debt.......................   1,167,444          - -
   Real estate acquired in claim settlement.......     141,999          - -
   Other assets...................................    (860,688)      (608,249)
                                                   -----------    -----------
Net cash provided by operating activities.........   9,983,500      7,554,421
Investing activities
Securities available-for-sale:
    Purchases - fixed maturities.................. (55,453,677)   (17,193,982)
    Sales - fixed maturities......................   7,529,296     10,180,132
    Purchases - equities..........................  (3,839,720)    (2,035,585)
    Sales - equities..............................   4,264,323      1,191,623
  Purchase of property and equipment..............    (778,697)      (538,477)
                                                   -----------    -----------
Net cash used in investing activities............. (48,278,475)    (8,396,289)
Financing activities
Proceeds from issuance of long term debt..........  34,493,752
Proceeds from exercise of stock options...........     185,163              0
                                                   -----------    -----------
Net cash provided by financing activities.........  34,678,915              0
                                                   -----------    -----------
Net change in cash and short-term investments.....  (3,616,060)      (841,868)
Cash and short-term investments at beginning 
    of period.....................................   8,694,399      3,662,711
                                                   -----------    -----------
Cash and short-term investments at end of period.. $ 5,078,339    $ 2,820,843
                                                   ===========    ===========
Supplemental schedule of cash flow information
   Cash paid during the period for income taxes
   and United States Mortgage Guaranty Tax
   and Loss Bonds................................. $ 4,869,426    $ 2,399,677
                                                   ===========    ===========
Non-cash investing and finance activities:
   Exchange of restricted common stock for
   intangible asset............................... $   298,125    $    - -
                                                   ===========    ===========

                             See accompanying notes.
 
                                      5
<PAGE>

                               TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 1998
                                   (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 six month periods ended June
30, 1998 are not necessarily  indicative of the results that may be expected for
the year  ending  December  31,  1998.  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, 1997.


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
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
                                  June 30, 1998
                                   (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 June 30, 1998 and December 31, 1997, 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:



                                           June 30,         December 31
                                             1998               1997

Net risk.............................  $ 2,482,240,033     $2,231,572,130
                                       ===============     ==============
Statutory capital and surplus........  $    89,171,906     $   60,929,830
Statutory contingency reserve........       67,403,841         54,766,669
                                       ---------------     --------------
Total................................  $   156,575,747     $  115,696,499
                                       ===============     ==============
Risk-to-capital ratio................        15.9-to-1          19.3-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  $15,175,165  for the six months ended June 30, 1998 and $22,916,215 for the
year ended December 31, 1997.

     At June 30, 1998 and December 31, 1997,  the amount of Triad's  equity that
could be paid out in dividends to  stockholders  was $5,455,978 and  $2,512,027,
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
                                  June 30, 1998
                                   (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

     On January 1, 1998, the Company adopted  Statement of Financial  Accounting
Standards No. 130, Reporting Comprehensive Income. Statement No. 130 establishes
standards for reporting and display of the components of comprehensive income in
financial statements.  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.  The adoption of this  statement had no impact on the
Company's net income or stockholders' equity.

     For the three month  periods  ended June 30, 1998 and 1997,  the  Company's
comprehensive  income was $6.0 million and $5.5 million,  respectively.  For the
six month  periods  ended June 30, 1998 and 1997,  the  Company's  comprehensive
income was $11.3 million and $8.0 million, respectively.  Prior period financial
statements have been  reclassified  to conform to the  requirements of Statement
No. 130.


NOTE 7 - - LONG TERM DEBT

     On January 29, 1998, the Company  completed a $35 million private  offering
of notes due January 15, 2028. The notes, which represent unsecured  obligations
of the Company,  bear interest at a rate of 7.9% per annum and are non-callable.
The notes are rated "A" by  Standard  and Poor's  Corporation  and "A+" by Fitch
Investors Service.  The Company contributed $25 million of the net proceeds from
the sale of the notes to Triad in exchange for a surplus debenture.  The Company

                                        8
<PAGE>

                               TRIAD GUARANTY INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                  June 30, 1998
                                   (Unaudited)


will be dependent upon payments under the surplus  debenture issued by Triad and
upon  possible  future  dividends  from  Triad,  all of which will be subject to
significant payment restrictions under Illinois insurance laws, to provide funds
for the  payment  of the  Company's  obligations  under the notes.  The  Company
retained the balance of the net  proceeds of the  offering,  approximately  $9.4
million,  which will be available  for general  corporate  purposes,  including,
without limitation,  investment, payments of principal and interest on the notes
and possible future contributions to the capital of Triad.


                                        9
<PAGE>

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


RESULTS OF OPERATIONS

     Net  income  for the first  six  months  of 1998  increased  52.8% to $11.4
million compared to $7.5 million in the first six months of 1997. Net income for
the second  quarter of 1998  increased  49.9% to $6.0  million  compared to $4.0
million for the second quarter of 1997.  This  improvement is  attributable to a
46.1% (40.9% in the second quarter) increase in earned premiums,  a 46.8% (54.9%
in the  second  quarter)  increase  in net  investment  income  and an  improved
combined loss and expense ratio.

     Net income per share on a diluted  basis,  which  reflects the  two-for-one
stock split  effective  on October 28,  1997,  increased  50.3% to $0.82 for the
first six months of 1998 compared to $0.55 per share for the first six months of
1997. Net income per share for the second quarter of 1998 was $0.44 on a diluted
basis  compared  to $0.30  per  share  for the same  period  of 1997.  Operating
earnings  per share were $0.81 for the first half of 1998  compared to $0.55 for
the  first  half of 1997.  Operating  earnings  exclude  net  realized  gains of
approximately  $274,000  in the  first six  months of 1998 and of  approximately
$6,000 in the same period of 1997.

     Net new insurance written was $2.0 billion for the first six months of 1998
as  compared to $1.3  billion  for the first six months of 1997,  an increase of
53.3%. For the second quarter, net new insurance written totaled $1.2 billion in
1998 compared to $731 million in 1997.  The Company also produced  approximately
$171  million of new  insurance  written on seasoned  loans in the first half of
1998  compared to $641  million in the same period of 1997.  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 of net new  insurance  written
increased to 2.5% for the first six months of 1998 compared to 2.4% reported for
all of 1997.

     The growth in new insurance  written also  reflects the favorable  interest
rate  environment  in the first six months of 1998 which  caused home buying and
refinance  activities  to remain  strong.  Refinance  activity  was 33.8% of new
insurance written in the first six months of 1998 compared to 14.0% in the first
six months of 1997.  Total direct  insurance in force  reached  $10.1 billion at
June 30, 1998, compared to $8.0 billion at June 30, 1997, an increase of 26.4%.

     Total direct  premiums  written were $24.3 million for the first six months
of 1998, an increase of 38.7% compared to $17.5 million for the first six months
of 1997. Net premiums  written  increased by 44.6% to $23.9 million in the first
six months of 1998 compared to $16.5 million for the same period in 1997. Earned
premiums  increased 46.1% to $24.6 million for the first half of 1998 from $16.8

                                       10
<PAGE>

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


million in the first half of 1997.  This  growth in written  and earned  premium
resulted  from the  increase  in new  insurance  written,  offset  somewhat by a
decline in the Company's  persistency  rate. The Company's  persistency,  or the
number of policies remaining in force from one year prior, was 78.3% at June 30,
1998,  compared to 84.2%at December 31, 1997. Sales under the Company's  monthly
premium plan  represented  97.8% of new  insurance  written in the first half of
1998 compared to 94.2% in the same period of 1997.

     Net investment income for the first half of 1998 was $4.4 million,  a 46.8%
increase over $3.0 million in the first half of 1997. Net investment  income for
the second  quarter of 1998 was $2.3 million,  a 54.9%  increase over the second
quarter of 1997.  This increase in investment  income is the result of growth in
the average book value of invested  assets by $41.9 million to $141.2 million at
June 30,  1998,  from $99.3  million at June 30,  1997.  The growth in  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  increased  slightly to 6.2% for the first six months of 1998 compared to
6.0% for the  first  six  months  of 1997 and for all of 1997.  The  portfolio's
tax-equivalent  yield was 8.0% for the  first six  months of 1998 and for all of
1997.  Approximately  68% or  $97.6  million  of the  Company's  fixed  maturity
portfolio at June 30, 1998,  was composed of state and  municipal  tax-preferred
securities as compared to 66% at June 30, 1997.

     The Company's loss ratio (the ratio of incurred losses to earned  premiums)
was 10.5% for the first six months of 1998 compared to 13.6% for the same period
of 1997 and  13.4%  for all of  1997.  The loss  ratio  was 8.7% for the  second
quarter of 1998 compared to 12.1% for the second  quarter of 1997. The Company's
favorable  loss ratio  reflects the low level of  delinquencies  compared to the
number of insured  loans and the fact that  approximately  76% 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.

     During periods of  significant  refinancing  activity,  it is possible that
policies on stronger  loans may be canceled  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.

                                       11
<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 13.0% in the first six months of 1998 to $2.6  million  compared to
$2.3  million  in the first six months of 1997.  Net losses and loss  adjustment
expenses for the second quarter of 1998 and 1997 were $1.1 million.  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 34.6% to
$2.6  million in the first six months of 1998  compared to $2.0  million for the
first six months of 1997.  These costs were $1.4 million for the second  quarter
of 1998  compared to  $984,000  for the second  quarter of 1997,  an increase of
38.4%. 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 during the first six months of 1998.

     Other operating  expenses increased 35.8% to $6.3 million for the first six
months of 1998  compared to $4.7  million  for the same period in 1997.  For the
second quarter of 1998, other operating  expenses increased to $3.2 million from
$2.5  million in the second  quarter  of 1997.  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  half of 1998 was 37.6%  compared  to 40.1% for the first  half of
1997 and 37.5% for all of 1997. The expense ratio for the second quarter of 1998
improved  to 36.8%  from 38.7%  reported  a year  earlier.  The  primary  factor
contributing to this improvement was the higher level of written premiums in the
first half of 1998 offset by the increase in expenses.

     The effective tax rate for the first six months of 1998 was 30.8%  compared
to 31.4% in the first six  months of 1997.  This  decrease  is the result of the
increase in  investment in tax preferred  securities  and the  completion of the
phase-in during 1997 of the 35% federal  statutory income tax rate applicable to
companies with annual taxable income above $10 million.  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.


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 and expenses.

                                       12
<PAGE>

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


     The Company generated positive cash flow from operating  activities for the
first six months of 1998 of $10.0 million compared to $7.6 million for the first
six months of 1997.  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 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.

     In January 1998, the Company  completed a $35.0 million private offering of
notes due January 15, 2028. The notes, which represent unsecured  obligations of
the Company, bear interest at a rate of 7.9% per annum and are non-callable. The
notes  are  rated  "A" by  Standard  and  Poor's  Corporation  and "A+" by Fitch
Investors  Service.  The parent  company  contributed  $25.0  million of the net
proceeds to Triad in exchange  for a surplus  debenture.  The parent  company is
dependent  upon payments  under the surplus  debenture  issued by Triad and upon
possible  future  dividends  from  Triad,  all  of  which  will  be  subject  to
significant payment restrictions under Illinois insurance laws, to provide funds
for the  payment  of the  Company's  obligations  under the notes.  The  Company
retained the balance of the net  proceeds of the  offering,  approximately  $9.4
million,  and these  proceeds  are  available  for general  corporate  purposes,
including, without limitation, investment, payments of principal and interest on
the notes and possible future contributions to the capital of Triad.

     The parent  company's  cash flow is  dependent  on  interest  income,  cash
dividends, revenues from management fees and interest payments under the surplus
debenture from Triad. 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 paid by Triad in the form of management fees.

     Consolidated invested assets were $164.3 million at June 30, 1998, compared
to $119.9  million at December 31, 1997.  This increase is  attributable  to the
investment of proceeds of the $35.0  million debt  offering and  operating  cash
flow.  Through investment of a portion of the net proceeds of the note offering,
the Company has  increased its  investments  in higher  yielding  non-investment
grade securities to approximately 9% of its consolidated  investment  portfolio,
up from  approximately 3% at December 31, 1997. Net unrealized  investment gains
were $3.4  million  on equity  securities  and $3.2  million  on fixed  maturity
securities at June 30, 1998.  Fixed maturity  securities  and equity  securities
classified as available for sale totaled  $159.2  million at June 30, 1998.  The
fixed maturity  portfolio  consisted of approximately 68% municipal  securities,

                                       13

<PAGE>

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


23% corporate securities,  7% U.S. government obligations and 2% mortgage-backed
bonds at June 30, 1998.

     The  Company's  loss  reserves  increased to $9.9 million at June 30, 1998,
compared to $9.0 million at December 31, 1997.  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  $25,500 at June 30,  1998,
compared to $23,100 at December 31, 1997. The Company's  delinquency  ratio, the
ratio of delinquent  insured loans to total insured loans, was 0.44% at June 30,
1998, compared to 0.47% at December 31, 1997.

     The Company's  unearned  premium  reserve of $7.3 million at June 30, 1998,
decreased from $8.0 million at December 31, 1997.  This decline is  attributable
primarily 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 $123.6  million at June 30,
1998, from $111.8 million at December 31, 1997. This increase  resulted from net
income of $11.4  million  for the first six  months of 1998 and from  additional
paid-in  capital of $483,000  resulting  from the  exercise  of  employee  stock
options and the issuance of restricted  stock in  connection  with the buyout of
one of the Company's exclusive  commissioned  general agencies.  These increases
were offset  somewhat by a decline in net  unrealized  gains on  investments  of
about $108,000.

     Triad's total statutory  policyholders'  surplus increased to $89.2 million
at June 30,  1998,  from $60.9  million at  December  31,  1997.  This  increase
resulted  from the  Company's  contribution  to Triad of $25.0  million  of note
proceeds through a surplus debenture, statutory net income of $15.2 million, and
unrealized  gains on  equity  securities  of  $422,000  offset  primarily  by an
increase  in  the  statutory  contingency  reserve  of  $12.6  million.  Triad's
statutory  earned  surplus was $5.5 million at June 30,  1998,  compared to $2.5
million at December 31, 1997,  reflecting growth in statutory net income greater
than the  increase  in the  statutory  contingency  reserve.  The balance in the
statutory  contingency  reserve was $67.4 million at June 30, 1998,  compared to
$54.8 million at December 31, 1997.

     Substantially  all of the  Company's  existing  computer  systems which are
integral to its business were originally  developed to be year 2000 compliant or
will be  reprogrammed.  The Company  plans to reprogram  its  existing  computer
systems, as necessary,  and complete testing of the Company's existing system by
December 31, 1998. Year 2000 compliance costs incurred relating to the Company's
existing  computer  systems are being expensed and are  immaterial.  Some of the

                                       14

<PAGE>


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


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 is working
with  these  third  parties to  coordinate  any  necessary  testing of year 2000
related system  interfaces.  As a result,  the Company does not anticipate  that
year 2000 compliance  issues arising from interfaces  with  third-party  systems
will have a material impact on its operations.

     The Company also is undertaking  modifications  and upgrades to enhance its
computer  systems  and  technological  capabilities.  The Company  expects  that
aggregate costs of  approximately  $2.8 million will be expended for this system
conversion  and upgrade  (approximately  $1.1 million has been  expended for the
project  thus far through  June 30,  1998) and that the  project  will be funded
through cash flow from operations.  As a part of the systems enhancement effort,
which should be completed in the first quarter of 1999, management has initiated
a program to insure that the Company's new computer systems and applications are
year 2000  compliant.  The Company expects to incur internal staff costs as well
as  consulting  and other  expenses  related to  infrastructure  and  facilities
enhancement  necessary to insure that the systems are year 2000 compliant.  Most
of the  modifications  will be made as part of the Company's  capital upgrade to
its computer systems throughout the remainder of 1998 and 1999.

     Triad's  ability  to write  insurance  depends  on the  maintenance  of its
claims-paying ability rating 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 June 30,
1998, Triad's  risk-to-capital ratio was 15.9-to-1,  as compared to 19.3-to-1 at
December 31,  1997,  and  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;  the  Company's  performance  may  be  impacted  by  changes  in  the

                                       15
<PAGE>

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


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 affect 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

                  (c)   On April 17,  1998,  the Company  issued an aggregate of
                        7,500 shares of its Common Stock to two  individuals  in
                        connection  with the  acquisition  of  certain  business
                        interests from them valued for this purpose at $298,125.
                        Exemption  from  registration  is provided under Section
                        4(2) of the  Securities  Act of 1933,  as  amended,  and
                        Regulation D thereunder  for  transactions  by an issuer
                        not involving any public offering.

         ITEM 3.  DEFAULTS UPON SENIOR SECURITIES - NONE

         ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

     The  Annual  Meeting  of  Stockholders  was  held on May 14,  1998.  Shares
entitled to vote at the Annual Meeting totaled  13,302,721,  of which 11,383,945
shares were represented at the meeting.

     At the Annual  Meeting,  the following five  directors  were elected.  Also
shown are the  number of shares  cast for and  authorization  withheld  for each
nominee.

                                                               AUTHORIZATION
         NAME OF NOMINEE            NUMBER OF VOTES FOR           WITHHELD
         ---------------            -------------------        -------------
         Robert T. David                11,353,317                 30,628
         Raymond H. Elliott             11,341,417                 42,528
         William T. Ratliff,III         11,346,635                 37,310
         Darryl W. Thompson             11,346,635                 37,310
         David W. Whitehurst            11,357,735                 26,210

     Additionally,  at the Annual Meeting, stockholders approved a resolution to
amend the  Company's  Certificate  of  Incorporation  to increase  the number of
authorized shares of Common Stock from 20,000,000 to 32,000,000.

     No other  matters  came  before  the  Annual  Meeting  or any  adjournments
thereof.

         ITEM 5.  OTHER INFORMATION - NONE

         ITEM 6.  A.  EXHIBITS

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

                                       17

<PAGE>


                                   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: August 12, 1998
                                              /s/ Michael R. Oswalt
                                              -----------------------------
                                              Michael R. Oswalt
                                              Vice President and Controller,
                                              Principal Accounting Officer





















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