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

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

[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
Act of 1934
                 For the quarterly period ended March 31, 1997

                                       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)

                                 (910) 723-1282
              (Registrant's telephone number, including area code)
                               -----------------

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

Number of shares of Common Stock, $.01 par value, outstanding as of May 1, 1997:
6,645,361 shares.

<PAGE>

                               TRIAD GUARANTY INC.

                                      INDEX
                                                                            Page
                                                                          Number
Part I. Financial Information:

        Item 1. Financial Statements:

        Consolidated Balance Sheets as of March 31, 1997 (Unaudited)
           and December 31, 1996..............................................3

        Consolidated Statements of Income for the Three Month
           Periods Ended March 31, 1997 and 1996 (Unaudited)..................4

        Consolidated Statements of Cash Flows for the Three Month
           Periods Ended March 31, 1997 and 1996 (Unaudited)..................5

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

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

Part II. Other Information:

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

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


                                        2
<PAGE>
                               TRIAD GUARANTY INC.
                           CONSOLIDATED BALANCE SHEETS


                                                        March 31,   December 31,
                                                          1997          1996
                                                    -------------- -------------
Assets                                                (Unaudited)
Invested assets:
  Securities available-for-sale, at fair value:
    Fixed maturities ............................... $ 86,986,671   $ 87,229,855
    Equity securities...............................    7,307,334      7,494,817
    Short-term investments..........................    5,533,364      3,302,125
                                                    -------------  -------------
                                                       99,827,369     98,026,797

Cash................................................      142,445        360,586
Accrued investment income...........................    1,309,380      1,126,642
Deferred policy acquisition costs...................   10,577,107     10,198,397
Property and equipment..............................    1,862,293      1,705,389
Prepaid reinsurance premium.........................      330,836        300,200
Reinsurance recoverable.............................      155,192        153,274
Other assets........................................    1,166,814        531,238
                                                    -------------  -------------
Total assets........................................ $115,371,436  $ 112,402,523
                                                    =============  =============


Liabilities and stockholders' equity Liabilities:
  Losses and loss adjustment expenses...............  $ 6,992,554  $   6,305,397
  Unearned premiums.................................    7,776,734      8,216,478
  Amounts payable to reinsurer......................          321          1,993
  Current taxes payable.............................        1,831          1,596
  Deferred income taxes.............................    5,141,135      4,276,081
  Unearned ceding commission........................       89,674         80,573
  Accrued expenses and other liabilities............    1,203,439      1,840,369
                                                    -------------  -------------
Total liabilities...................................   21,205,688     20,722,487
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
   10,000,000 shares; 6,645,361 issued
   and outstanding shares.........,.................       66,453         66,453
  Additional paid-in capital........................   59,346,832     59,346,832
  Unrealized gain on available-for-sale
    securities, net of income
    tax liability of $318,776 at
    March 31, 1997 and $823,287
    at December  31, 1996...........................      607,624      1,568,800
    Retained earnings...............................   34,144,839     30,697,951
                                                    -------------  -------------
Total stockholders' equity..........................   94,165,748     91,680,036
                                                    -------------  -------------
Total liabilities and stockholders' equity.......... $115,371,436   $112,402,523
                                                    =============  =============

                             See accompanying notes


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



                                                         Three Months Ended
                                                              March 31
                                                         1997           1996
                                                         ----           ----
Revenue:
Premiums written:
   Direct..........................................   $7,894,068     $5,678,899
   Assumed.........................................        6,039         10,949
   Ceded...........................................     (521,604)      (616,759)
                                                   -------------   ------------
Net premiums written...............................    7,378,503      5,073,089
Change in unearned premiums........................      470,380        405,817
                                                   -------------   ------------
Earned premiums....................................    7,848,883      5,478,906
Net investment income..............................    1,471,915      1,279,124
Realized investment losses.........................         (881)       (42,285)
Other income.......................................        2,664             10
                                                   -------------   ------------
                                                       9,322,581       6,715,755
Losses and expenses:
Losses and loss adjustment expenses................    1,241,546        680,507
Reinsurance recoveries.............................      (45,696)       (27,482)
                                                   -------------   ------------
Net losses and loss adjustment expenses............    1,195,850        653,025
Amortization of deferred policy acquisition costs..      973,055        772,232
Other operating expenses (net).....................    2,121,764      1,615,103
                                                   -------------   ------------
                                                       4,290,669      3,040,360
                                                   -------------   ------------
Income before income taxes.........................    5,031,912      3,675,395
Income taxes:
   Current.........................................          458        (59,430)
   Deferred........................................    1,584,566      1,185,808
                                                   -------------   ------------
                                                       1,585,024      1,126,378
                                                   -------------   ------------
Net income.........................................   $3,446,888     $2,549,017
                                                   =============   ============

Earnings per common and common equivalent share:
   Primary.........................................    $ .50          $ .39
                                                   =============   ============
   Fully diluted...................................    $ .50          $ .38
                                                   =============   ============

Shares used in computing earnings per common 
   and common equivalent share:
   Primary.........................................    6,897,990      6,628,409
                                                   =============   ============
   Fully diluted...................................    6,898,040      6,786,174
                                                   =============   ============

                             See accompanying notes.

                                        4
<PAGE>
                               TRIAD GUARANTY INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                                   (Unaudited)

                                                          Three Months Ended
                                                                March 31
                                                     ---------------------------
                                                           1997         1996
                                                           ----         ----
Operating activities
Net income..........................................  $ 3,446,888   $ 2,549,017
Adjustments to reconcile net income
    to net cash provided by operating activities:
   Loss and unearned premium reserves...............      247,413       (78,709)
   Accrued expenses and other liabilities...........     (650,246)     (225,208)
   Current taxes payable............................          235             0
   Amounts due to/from reinsurers...................      (34,226)    1,872,152
   Accrued investment income........................     (182,738)     (176,594)
   Policy acquisition costs deferred................   (1,351,765)   (2,114,466)
   Amortization of policy acquisition costs.........      973,055       772,232
   Net realized investment losses ..................          881        42,285
   Provision for depreciation.......................      128,379        83,357
   Accretion of discount on investments.............     (149,142)     (148,092)
   Deferred income taxes............................    1,369,566     1,126,008
   Unearned ceding commission.......................        9,101      (510,655)
   Other assets.....................................     (635,658)      193,349
                                                     ------------  ------------
Net cash provided by operating activities...........    3,171,743     3,384,676
Investing activities 
  Securities available-for-sale:
    Purchases - fixed maturities....................  (10,278,355)   (9,428,784)
    Sales - fixed maturities........................    9,064,083     4,852,676
    Purchases - equities............................     (385,641)     (894,290)
    Sales - equities................................      726,551       246,813
  Purchase of property and equipment................     (285,283)      (74,462)
                                                     ------------  ------------
Net cash used in investing activities...............   (1,158,645)   (5,298,047)
Financing activities
Net cash provided by financing activities...........        --            --
                                                     ------------  ------------
Net change in cash and short-term investments.......    2,013,098    (1,913,371)
Cash and short-term investments at beginning
   of period........................................    3,662,711     4,425,448
                                                     ------------  ------------
Cash and short-term investments at end of period....  $ 5,675,809   $ 2,512,077
                                                     ============  ============

Supplemental schedule of cash flow information......
Cash paid during the period for income taxes
  and United States Mortgage Guaranty Tax
  and Loss Bonds....................................  $   215,458   $        0
                                                     ============  ============

                             See accompanying notes.

                                       5

<PAGE>
                               TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 1997
                                   (Unaudited)


NOTE 1 -- THE COMPANY

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


NOTE  2 -- BASIS OF PRESENTATION

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included. Operating results for the three month period ended March 31, 1997
are not necessarily  indicative of the results that may be expected for the year
ending  December 31, 1997. 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, 1996.


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
                                 March 31, 1997
                                   (Unaudited)


INSURANCE IN FORCE,  DIVIDEND  RESTRICTIONS,  AND STATUTORY  RESULTS - Insurance
regulations  limit the writing of mortgage  guaranty  insurance  to an aggregate
amount of insured risk no greater than twenty-five  times the total of statutory
capital and surplus and the  statutory  contingency  reserve.  The amount of net
risk for  insurance  in force at March  31,  1997  and  December  31,  1996,  as
presented  below,  was  computed by applying the various  percentage  settlement
options to the insurance in force amounts based on the original  insured  amount
of the loan. Triad's ratio is as follows:



                                           March 31          December 31
                                             1997                1996

Net risk.............................   $1,574,737,669      $1,452,824,414
                                      ================   =================
Statutory capital and surplus........   $   57,208,296      $   57,070,475
Statutory contingency reserve........       39,238,014          35,072,109
                                      ----------------   -----------------    
Total................................   $   96,446,310      $   92,142,584
                                      ================   =================
Risk-to-capital ratio................     16.3-to-1           15.8-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 $4,637,369 for the three months ended March 31, 1997 and $13,396,769 for the
year ended December 31, 1996.

     At  March  31,  1997,  none of the  Company's  equity  could be paid out in
dividends  to the  stockholders  because  the  earned  surplus  of  Triad,  on a
statutory  basis,  was a ========
Risk-to-capitand $1,347,326 at March 31, 1997
and December 31, 1996, respectively.


                                        7

<PAGE>


=


     Triad is  re       TRIAD GUARANTY INC.
              NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
                                 March 31, 1997
                                   (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

     Primary  and fully  diluted  earnings  per share are based on the  weighted
average daily number of shares  outstanding.  For both primary and fully diluted
earnings per share,  computation of the weighted  average daily number of shares
outstanding includes common stock equivalents.  Common stock equivalents include
stock options that have a dilutive effect on earnings per share.

NOTE 6 - - NEW ACCOUNTING STANDARDS

     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128,  "Earnings per Share",  which is required to be adopted on December 31,
1997. At that time, the Company will be required to change the method  currently
used to compute  earnings per share and to restate all prior periods.  Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock  options  will be  excluded.  The  impact is  expected  to result in an
increase in primary  earnings  per share for the first  quarter  ended March 31,
1997 of $ .02 per share.  For the first quarter ended March 31, 1996, the impact
of  Statement  128 will not be  material.  The  impact of  Statement  128 on the
calculation  of fully  diluted  earnings  per share for  these  quarters  is not
expected to be material.



















                                       8
<PAGE>

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

RESULTS OF OPERATIONS

     Net  income  for the first  three  months of 1997  increased  35.2% to $3.4
million  compared  to $2.5  million  in the first  three  months  of 1996.  This
improvement  is  attributable  to a 43.3% increase in earned  premiums,  a 15.1%
increase in net  investment  income and an improved  combined (loss and expense)
ratio.

     Net income per share  assuming full dilution  increased  33.0% to $0.50 for
the first three  months of 1997  compared to $0.38 per share for the first three
months of 1996. The Company reported only nominal amounts of realized investment
losses in the first quarter of 1997 and 1996 resulting in operating earnings per
share assuming full dilution of $0.50 and $0.38, respectively.

     New  insurance  written  during  the  first  three  months of 1997 was $650
million  compared to $460 million in the first three months of 1996, an increase
of  41.6%.  This  increase  in gross  new  insurance  written  is the  result of
continued  geographic  expansion and the penetration of Triad's  products in the
marketplace  including the  introduction  of new risk sharing  products to Triad
customers.  The Company has also  benefited  from the  January  1997  upgrade of
Triad's  claims-paying  ability  rating  from "AA-" to "AA" by Standard & Poor's
Corporation.  A slightly higher but still favorable interest rate environment in
the first  three  months  of 1997 has  caused  both  refinance  and home  buying
activities to remain strong.  Due to the increase in interest  rates,  refinance
activity declined to 18.4% of new insurance written in the first quarter of 1997
compared to 29.5% of insurance  written in the same period of 1996. Total direct
insurance  in force  reached  $7.0  billion at March 31,  1997  compared to $5.5
billion at March 31, 1996, an increase of 28.1%.

     Net new insurance  written,  which excludes coverage on seasoned  business,
was $596 million  during the first  quarter of 1997 compared to $460 million for
the same  period of 1996,  an  increase of 29.7%.  According  to industry  data,
Triad's  national market share,  which is calculated  based on net new insurance
written,  increased by  approximately  50% to 2.4% for the first quarter of 1997
compared to 1.6% for the same period of 1996.

     Total direct premiums  written were $7.9 million for the first three months
of 1997,  an  increase  of 39.0%  compared  to $5.7  million for the first three
months of 1996. Net premiums  written  increased by 45.4% to $7.4 million in the
first three months of 1997 compared to $5.1 million for the same period in 1996.
Earned  premiums  increased  43.3% to $7.8 million for the first three months of
1997 from $5.5 million in the 1996 first quarter. Contributing to this growth in
written and earned premium were the increase in new insurance written, growth in
insurance in force,  continued  geographic  expansion and an  improvement in the
Company's  persistency  rate.  Sales under the  Company's  monthly  premium plan
represented 93.5% of new insurance written in the first quarter of 1997 compared
to 91.4% in the 1996 first quarter. Annualized persistency has improved to 84.8%
in the first three months of 1997 compared to 82.4% in the first three months of
1996 reflecting the decline in refinance activity.

     In the 1996 fourth quarter,  the Company  introduced its revised Stick With
Triad  program  featuring  the Slam Dunk Loan (SM) approval process  whereby the
Company issues a certificate of insurance based on the borrower's  credit score.

                                       9

<PAGE>

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

The popularity of this product,  to a large extent, has replaced customer use of
the Company's delegated underwriting program.  Commitments processed through the
Company's  delegated  underwriting  program  accounted for 11.4% of  commitments
received for the first  quarter of 1997,  compared to 35.6% in the first quarter
of 1996 and 38.0% for all of 1996.

     Net  investment  income for the first quarter of 1997 was $1.5  million,  a
15.1%  increase  over $1.3  million  in the  first  three  months of 1996.  This
increase  resulted from the growth in average invested assets of $7.1 million to
$97.3 million at March 31, 1997 from $85.2 million at March 31, 1996.  The yield
on average  invested assets increased to 6.1% for the first three months of 1997
compared to 6.0% for the same  period of 1996.  The  portfolio's  tax-equivalent
yield was 7.8% in the first  quarter  of 1997 and 7.7% in the first  quarter  of
1996.  This yield  reflects  the  Company's  investment  strategy  to  emphasize
tax-preferred   securities   which  yield  lower   pre-tax  rates  than  similar
fully-taxable  securities.  Approximately  63% or $54.7 million of the Company's
fixed  maturity  portfolio at March 31, 1997 was composed of state and municipal
tax-preferred securities.

     The Company's loss ratio (the ratio of incurred losses to earned  premiums)
was 15.2% for the 1997 first  quarter  compared  to 11.9% for the same period of
1996 and 13.3% for all of 1996. The higher loss ratio incurred in the 1997 first
quarter  reflects  an  expected  higher  level of  delinquencies  reduced by the
effects of increased production of new insurance.  While the Company experienced
an increase in its loss  ratio,  paid losses  continue to remain low at 6.7% and
6.3% of earned  premium  for the first  quarter of 1997 and 1996,  respectively.
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.  With increasing  production,
71% of the  Company's  insurance  in force  has been  originated  in the last 36
months.  Although the claims  experience  on new  insurance  written in previous
years has been quite  favorable,  the  Company  expects its  incurred  losses to
increase as a greater  amount of its insurance in force reaches its  anticipated
highest claim frequency years. Due to the inherent uncertainty of future premium
levels,  losses,  economic conditions and other factors that impact earnings, it
is  impossible to predict with any degree of certainty the impact of such higher
claims frequencies on future earnings.

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

     Net losses and loss  adjustment  expenses (net of  reinsurance  recoveries)
increased by 83.1% in the first three months of 1997 to $1.2 million compared to
$653,000 in the first three months of 1996. This increase  reflects the increase
in 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 26.0% to
$973,000 in the first three  months of 1997  compared to $772,000  for the first

                                       10
<PAGE>

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

three months of 1996. The increase in amortization reflects a growing balance of
deferred  policy  acquisition  costs to amortize as the Company builds its total
insurance in force.

     Other  operating  expenses  increased  to $2.1  million for the first three
months of 1997  compared  to $1.6  million  for the same  period  in 1996.  This
increase  in expenses  is  primarily  attributable  to  advertising,  personnel,
facilities  and  equipment  costs  required  to support  the  Company's  product
development,  geographic expansion and increased production. A decline in ceding
commissions  earned,  which  are  reported  as a  reduction  in other  operating
expenses, also contributed to the increase in expenses.

     The expense ratio (ratio of underwriting  expenses to net premiums written)
for the first quarter of 1997 was 41.9%  compared to 47.1% for the first quarter
of 1996 and 43.8%  for all of 1996.  The  primary  factor  contributing  to this
improvement  was the higher  level of written  premiums in the first  quarter of
1997.

     The effective tax rate for the first quarter of 1997 was 31.5%  compared to
30.6% in the first quarter of 1996. This increase is primarily the result of the
phase-in 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 or  increase  slightly  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  funds are applied  primarily to the
payment of claims and expenses.

     The Company generated positive cash flow from operating  activities for the
first three  months of 1997 of $3.2  million  compared  to $3.4  million for the
first three months of 1996. The decrease in the Company's cash flow is primarily
attributable to the recapture of previously  ceded premiums in the first quarter
of  1996  resulting  from  the  Company's   restructuring   of  its  reinsurance
agreements.

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

     The parent  company's cash flow is dependent on cash dividends and revenues
from  management  fees 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 and limit the amount of dividends that
may be paid without prior approval of the Illinois Insurance Department. Because


                                       11

<PAGE>

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



of Triad's rapid growth in written  premiums and the  requirement to add amounts
to the statutory  contingency  reserve equal to at least 50% of earned  premiums
(which reduces statutory earned surplus),  Triad reported a deficit in statutory
earned  surplus of $1.2  million at March 31, 1997 and $1.3  million at December
31, 1996. Accordingly,  Triad may not presently pay cash dividends to the parent
company.  The  Illinois  Insurance  Department  permits  expenses  of the parent
company to be charged to Triad in the form of management fees.

     Consolidated  invested  assets  were  $99.8  million  at  March  31,  1997,
including  a total of $94.3  million  in fixed  maturity  securities  and equity
securities classified as available-for-sale.  Net unrealized investment gains on
equity  securities  were $1.1 million and net  unrealized  investment  losses on
fixed maturity securities totaled $199,000 at March 31, 1997.

     Approximately 9% or $7.4 million of the Company's fixed maturity  portfolio
at March 31, 1997 was composed of mortgage-backed securities,  substantially all
of which are guaranteed by U.S.  Government  Agencies.  Certain  mortgage-backed
securities are subject to significant  prepayment  risk due to the fact that, in
periods of declining  interest rates,  mortgages may be repaid more rapidly than
scheduled  as borrowers  refinance  higher rate  mortgages to take  advantage of
lower rates.  As a result,  holders of  mortgage-backed  securities  may receive
large  prepayments on their investments which must be reinvested at then current
rates.

     Included in the  Company's  fixed  maturity  portfolio  of mortgage  backed
securities at March 31, 1997 was $3.4 million  invested in planned  amortization
class ("PAC") collateralized mortgage obligations ("CMOs"). PACs are tranches of
CMOs  specifically  designed  to amortize  in a more  predictable  manner and to
protect against  prepayments as interest rates decline.  In periods of declining
interest  rates,  prepayments  are first applied to the non-PAC  tranches of the
CMO,  creating  improved  call  protection  for the PAC tranche.  Only after all
non-PAC tranches have been paid off are prepayments  applied to the PAC tranche.
In periods of increasing  interest  rates,  prepayments are first applied to the
PAC tranche,  thus reducing  extension  risk for PACs. As a result,  PACs have a
more  stable cash flow than most other  mortgage  securities  because  they have
better call protection and less extension risk. All principal  balances invested
in CMOs by the Company are U.S. Government agency sponsored or guaranteed.

     The  Company's  loss  reserves  increased to $7.0 million at March 31, 1997
compared to $6.3 million at December 31, 1996.  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  $22,000 at March 31,  1997
compared to $23,000 at December 31, 1996. The Company's  delinquency  ratio, the
ratio of delinquent insured loans to total insured loans, was 0.49% at March 31,
1997 compared to 0.44% at December 31, 1996.

     The Company's  unearned  premium  reserve of $7.8 million at March 31, 1997
decreased from $8.2 million at December 31, 1996.  This decline is  attributable
primarily to the continued high production of the monthly premium product, which
produces little unearned premium compared to annual and single premium products.
Also,  the Company has  experienced  a high level of  refinance  activity in the


                                       12

<PAGE>

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


first  quarter of 1997  whereby  older annual  premium  policies are replaced by
monthly premium policies resulting in a decline in the unearned premium reserve.

     Total  stockholders'  equity  increased to $94.2  million at March 31, 1997
from $91.7 million at December 31, 1996. This increase  resulted from net income
of $3.4 million for the first three months of 1997,  offset by a decrease in net
unrealized gains on invested assets classified as available-for-sale of $962,000
(net of income tax).

     Triad's total statutory  policyholders'  surplus increased to $57.2 million
at March 31,  1997 from $57.1  million  at  December  31,  1996.  This  increase
resulted from net income of $4.6 million offset  primarily by an increase in the
contingency reserve of $4.2 million. Triad's deficit in statutory earned surplus
was $1.2  million at March 31,  1997  compared to $1.3  million at December  31,
1996, reflecting growth in statutory net income greater than the increase in the
contingency reserve. The balance in the contingency reserve was $39.2 million at
March 31, 1997 compared to $35.1 million at December 31, 1996.

     The Company  currently has no plans for significant  capital  expenditures.
However,  Triad  continues  to upgrade  and  enhance  its  computer  systems and
technological capabilities.

     In the first quarter of 1997, Triad introduced a mortgage insurance program
to enable the  Company to better meet the needs and  requirements  of the larger
national  lenders.  The program increases the lender's share of the risk of loss
on an insured  book of business  and  provides  for a fee to the lender for this
increased  risk.  While the impact of this  product to Triad cannot be predicted
with certainty,  management believes that successful marketing and acceptance of
this product by national lenders could provide significant growth  opportunities
for Triad for the remainder of 1997.

     The  Company's  marketing of its new products  together  with the Company's
geographic  expansion and focus on national lenders have dramatically  increased
the number of  applications  received in the first quarter of 1997. As a result,
management  believes  that  production  levels in the first  half of 1997  could
approach  twice the  production  level  achieved in the first half of 1996.  The
precise  level of  production,  however,  will  depend  on a number  of  factors
including   interest  rates,   regulatory   requirements  and  general  economic
conditions.

     The  Company's  ability to write  insurance  depends on the adequacy of its
capital in relation to risk in force.  A  significant  reduction of capital or a
significant  increase  in  risk  may  impair  the  Company's  ability  to  write
additional insurance. Freddie Mac and Fannie Mae require the Company to maintain
a  risk-to-capital  ratio of no more  than  25-to-1.  A number  of  states  also
generally limit the Company's  risk-to-capital ratio to 25-to-1. As of March 31,
1997 Triad's  risk-to-capital  ratio was 16.3-to-1,  and as of December 31, 1996
was 15.8-to-1,  as compared to 20.3-to-1 for the industry as a whole at December
31,  1995,  the  latest  industry  data  available.   Management   believes  its
risk-to-capital  ratio can  increase  up to  approximately  20-to-1  without  an
adverse effect on its claims-paying ability ratings. With increasing production,
management  and  the  Board  of  Directors  are  evaluating  Triad's  needs  and
alternatives for additional capital.


                                       13

<PAGE>

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

NEW ACCOUNTING STANDARDS

     In February 1997, the Financial Accounting Standards Board issued Statement
No. 128,  Earnings  Per Share,  which is required to be adopted on December  31,
1997. At that time, the Company will be required to change the method  currently
used to compute  earnings per share and to restate all prior periods.  Under the
new requirements for calculating primary earnings per share, the dilutive effect
of stock  options  will be  excluded.  The  impact is  expected  to result in an
increase in primary  earnings  per share for the first  quarter  ended March 31,
1997 of $0.02 per share.  The impact on primary earnings per share for the first
quarter  ended March 31,  1996 is not  expected  to be  material.  The impact of
Statement 128 on the  calculation of fully diluted  earnings per share for these
quarters is not expected to be material.


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; 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 particular 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.






                                       14

<PAGE>

PART II

Item 1.  Legal Proceedings - None

Item 2.  Changes in Securities - None

Item 3.  Defaults Upon Senior Securities - None

Item 4.  Submission of Matters to a Vote of Security Holders - None

Item 5.  Other Information - None


 Item 6.       a.  Exhibits

                   Exhibit                           Description
                   -------                           -----------
                      11                   Statement Re Computation of Net
                                               Income per share
                      27                   Financial Data Schedule

               b.  Reports on Form 8-K - None






                                   SIGNATURES

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

                                          TRIAD GUARANTY INC.


Date: May 13, 1997
                                          /s/ Michael R. Oswalt
                                          ---------------------
                                          Michael R. Oswalt
                                          Vice President and Controller,
                                          Principal Accounting Officer



                                       15

<PAGE>



                                  EXHIBIT INDEX



          Exhibit
           Number                           Description
           ------                           -----------
            11              Statement Re Computation of Net Income per Share
            27              Financial Data Schedule




















                                       16