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

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

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

                For the quarterly period ended September 30, 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 November 10,
1997:  13,291,722  shares.  Outstanding  share amount reflects the  registrant's
2-for-1 stock split effective October 28, 1997.


<PAGE>

                               TRIAD GUARANTY INC.

                                      INDEX
                                                                            Page
                                                                          Number
PART I. FINANCIAL INFORMATION:

   ITEM 1. FINANCIAL STATEMENTS:

   Consolidated Balance Sheets as of September 30, 1997 (Unaudited)
            and December 31, 1996..............................................3

   Consolidated Statements of Income for the Three and Nine Month
            Periods Ended September 30, 1997 and 1996 (Unaudited)..............4

   Consolidated Statements of Cash Flows for the Nine Month
            Periods Ended September 30, 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.............................................10

PART II. OTHER INFORMATION:

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

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


                                        2
<PAGE>
                               TRIAD GUARANTY INC.
                           CONSOLIDATED BALANCE SHEETS

                                                      September 30, December 31,
                                                          1997          1996
                                                      ------------  ------------
Assets                                                 (Unaudited)
Invested assets:
  Securities available-for-sale, at fair value:
    Fixed maturities .................................$ 99,278,646  $ 87,229,855
    Equity securities.................................  10,522,188     7,494,817
  Short-term investments..............................   3,950,109     3,302,125
                                                      ------------  ------------
                                                      $113,750,943  $ 98,026,797

Cash..................................................      23,293       360,586
Accrued investment income.............................   1,652,154     1,126,642
Deferred policy acquisition costs.....................  11,455,857    10,198,397
Property and equipment................................   2,322,645     1,705,389
Prepaid reinsurance premium...........................     264,363       300,200
Reinsurance recoverable...............................     189,096       153,274
Other assets..........................................   1,618,713       531,238
                                                      ------------  ------------
Total assets..........................................$131,277,064  $112,402,523
                                                      ============  ============
Liabilities and stockholders' equity Liabilities:
  Losses and loss adjustment expenses.................$  8,282,460  $  6,305,397
  Unearned premiums...................................   8,085,950     8,216,478
  Amounts payable to reinsurer........................       1,145         1,993
  Current taxes payable...............................       3,318         1,596
  Deferred income taxes...............................   6,694,744     4,276,081
  Unearned ceding commission..........................      72,424        80,573
  Accrued expenses and other liabilities..............   2,147,209     1,840,369
                                                      ------------  ------------
Total liabilities.....................................  25,287,250    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 20,000,000  shares;  13,291,722 
    shares issued and outstanding at September 30,
    1997 and 6,645,361 at December 31, 1996 - Note 7..     132,917        66,453
  Additional paid-in capital..........................  59,355,747    59,346,832
  Unrealized gain on available-for-sale securities,
     net of income tax liability of $1,952,270 at
     September 30, 1997 and $823,287 at 
     December 31, 1996................................   3,651,385     1,568,800
  Retained earnings...................................  42,849,765    30,697,951
                                                      ------------  ------------
Total stockholders' equity............................ 105,989,814    91,680,036
                                                      ------------  ------------
Total liabilities and stockholders' equity............$131,277,064  $112,402,523
                                                      ============  ============

                             See accompanying notes

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

<TABLE>
<CAPTION>
                                                        Three Months Ended                Nine Months Ended
                                                            September 30                     September 30
                                                    ----------------------------    ----------------------------
                                                        1997             1996            1997            1996
<S>                                                 <C>             <C>             <C>             <C>         
Revenue:
Premiums written:
   Direct .......................................   $ 11,088,559    $  7,217,239    $ 28,635,704    $ 19,008,390
   Assumed ......................................          7,150           4,559          23,204          20,306
   Ceded ........................................       (485,041)       (537,661)     (1,541,755)     (1,712,620)
                                                    ------------    ------------    ------------    ------------
Net premiums written ............................     10,610,668       6,684,137      27,117,153      17,316,076
Change in unearned premiums .....................       (232,442)       (171,273)         94,691         438,941
                                                    ------------    ------------    ------------    ------------
Earned premiums .................................     10,378,226       6,512,864      27,211,844      17,755,017
Net investment income ...........................      1,729,886       1,368,002       4,703,465       4,011,300
Realized investment gains .......................         71,616         (12,334)         77,466        (153,906)
Other income ....................................          1,686               0           7,716               0
                                                    ------------    ------------    ------------    ------------
                                                      12,181,414       7,868,532      32,000,491      21,612,411
Losses and expenses:
Losses and loss adjustment expenses .............      1,554,580       1,048,633       3,938,719       2,381,510
Reinsurance recoveries ..........................        (34,927)        (35,826)       (133,320)       (101,085)
                                                    ------------    ------------    ------------    ------------
Net losses and loss adjustment expenses .........      1,519,653       1,012,807       3,805,399       2,280,425
Amortization of deferred policy acquisition costs      1,049,639         816,832       3,007,082       2,418,039
Other operating expenses (net) ..................      2,704,303       1,840,693       7,371,666       5,216,808
                                                    ------------    ------------    ------------    ------------
                                                       5,273,595       3,670,332      14,184,147       9,915,272
                                                    ------------    ------------    ------------    ------------
Income before income taxes ......................      6,907,819       4,198,200      17,816,344      11,697,139
Income taxes:
   Current ......................................            223             223           2,391         (37,518)
   Deferred .....................................      2,169,410       1,309,466       5,595,680       3,645,061
                                                    ------------    ------------    ------------    ------------
                                                       2,169,633       1,309,689       5,598,071       3,607,543
                                                    ------------    ------------    ------------    ------------
Net income ......................................   $  4,738,186    $  2,888,511    $ 12,218,273    $  8,089,596
                                                    ============    ============    ============    ============

Earnings per common and common equivalent share:
   Primary ......................................   $   .34         $   .21         $   .88         $    .61
                                                    ============    ============    ============    ============
   Fully diluted ................................   $   .34         $   .21         $   .87         $    .59
                                                    ============    ============    ============    ============
Shares used in computing earnings per common
   and common equivalent share:
   Primary ......................................     14,014,582      13,737,574      13,889,126      13,273,514
                                                    ============    ============    ============    ============
   Fully diluted ................................     14,075,314      13,762,408      14,074,914      13,745,200
                                                    ============    ============    ============    ============
</TABLE>
                             See accompanying notes.

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


                                                          Nine Months Ended
                                                             September 30
                                                     ---------------------------
                                                          1997          1996
                                                          ----          ----
OPERATING ACTIVITIES
Net income ........................................... $12,218,273  $ 8,089,596
Adjustments to reconcile net income to net cash
 provided by operating activities:
   Loss and unearned premium reserves ...............   1,846,535       667,374
   Accrued expenses and other liabilities ...........     326,267       246,133
   Current taxes payable ............................       1,722       (38,331)
   Amounts due to/from reinsurers ...................        (833)    1,818,475
   Accrued investment income ........................    (525,512)     (290,700)
   Policy acquisition costs deferred ................  (4,264,541)    4,569,653)
   Amortization of policy acquisition costs .........   3,007,082     2,418,039
   Net realized investment gains ....................     (77,466)      153,906
   Provision for depreciation .......................     434,894       276,541
   Accretion of discount on investments .............    (463,182)     (444,646)
   Deferred income taxes ............................   1,289,680     1,539,794
   Unearned ceding commission .......................      (8,149)     (526,402)
   Real estate acquired in claim settlement .........           0      (134,401)
   Other assets .....................................  (1,086,688)      240,047
                                                      -----------   ------------
Net cash provided by operating activities ...........  12,698,082     9,445,772
INVESTING ACTIVITIES
Securities available-for-sale:
    Purchases - fixed maturities .................... (20,254,380)  (16,999,911)
    Sales - fixed maturities ........................  10,582,547     7,047,623
    Purchases - equities ............................  (3,150,355)   (2,595,723)
    Sales - equities ................................   1,469,121     1,824,431
  Purchase of property and equipment ................  (1,043,244)     (560,598)
                                                      -----------   ------------
Net cash used in investing activities ............... (12,396,311)  (11,284,178)
FINANCING ACTIVITIES
Proceeds from exercise of stock options .............       8,920       205,536
Retirement of common stock (at cost) ................           0          (512)
                                                      -----------   ------------
Net cash provided by financing activities ...........       8,920       205,024
                                                      -----------   -----------
Net change in cash and short-term investments .......     310,691     1,633,382)
Cash and short-term investments at
  beginning of period................................   3,662,711     4,425,448
                                                      -----------   -----------
Cash and short-term investments at end of period .... $ 3,973,402   $ 2,792,066
                                                      ===========   ============
Supplemental schedule of cash flow information
  Cash paid during the period for income 
  taxes and United States Mortgage Guaranty 
  Tax and Loss Bonds ................................ $  4,306,900  $ 1,948,782
                                                      ============  ============

                             See accompanying notes.
 
                                       5
<PAGE>
                               TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                               September 30, 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 and nine month  periods  ended
September  30, 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.  All significant intercompany accounts and
transactions have been eliminated.


NOTE 4 -- COMMITMENTS AND CONTINGENT LIABILITIES

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


                                        6

<PAGE>

                               TRIAD GUARANTY INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                               September 30, 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 September  30, 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:


                                      September 30,         December 31,
                                          1997                  1996
                                          ----                  ----

Net risk...........................   $2,066,871,668      $1,452,824,414
                                     ===============      ==============
Statutory capital and surplus......   $   60,132,542      $   57,070,475
Statutory contingency reserve......       49,000,126          35,072,109
                                     ---------------      --------------
Total..............................   $  109,132,668      $   92,142,584
                                     ===============      ==============
Risk-to-capital ratio..............      18.9-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  to
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 $16,493,981 for the nine months ended September 30, 1997 and $13,396,769 for
the year ended December 31, 1996.

     At September 30, 1997, Triad could pay out to the parent company a dividend
of $1,714,740,  representing the earned surplus,  on a statutory basis, of Triad

                                        7
<PAGE>
                               TRIAD GUARANTY INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                               September 30, 1997
                                   (Unaudited)

on that date. At December 31, 1996, no dividend  could be paid out to the parent
company,  because the surplus of Triad, on a statutory  basis,  was a deficit of
$1,347,326.

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  basic earnings per share, the dilutive effect
of stock options will be excluded.  The impact of calculating basic earnings per
share is expected to result in an increase in primary earnings per share for the
three and nine month  periods  ended  September  30, 1997 of $ .02 and $ .04 per
share,  respectively.  For the three and nine month periods ended  September 30,
1996, the impact of Statement 128 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.

         In June 1997, the Financial Accounting Standards Board issued Statement
No. 130,  Reporting  Comprehensive  Income which is  effective  for fiscal years
beginning after December 31, 1997. The Statement  establishes  standards for the
reporting and display of  comprehensive  income and its  components in financial
statements.  The Company expects to adopt the provisions of Statement No. 130 in
the first  quarter of 1998 and will  reclassify  the  financial  statements  for
earlier periods provided for comparative  purposes as required by the Statement.
The  application  of the new  rules  will not have an  impact  on the  Company's
financial position or results of operations.

                                        8

<PAGE>
                               TRIAD GUARANTY INC.
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- CONTINUED
                               September 30, 1997
                                   (Unaudited)


NOTE 7 - - STOCK SPLIT

     On September 18, 1997,  Triad's  Board of Directors  declared a two-for-one
stock split in the form of a 100% stock dividend  effective  October 28, 1997 to
holders of record as of October 10, 1997.  The stock split has been  recorded as
of September 30, 1997 by a transfer of $66,459 from retained  earnings to common
stock,  representing a $0.01 par value for each share issued. All per share data
in this report have been restated to reflect the split.























                                       9

<PAGE>




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

RESULTS OF OPERATIONS

NINE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996

     Net income for the first nine months of 1997 increased 51% to $12.2 million
compared to $8.1  million in the first nine  months of 1996.  Net income for the
third quarter of 1997 increased 64% to $4.7 million compared to $2.9 million for
the third quarter of 1996. This improvement is primarily attributable to a 53.3%
(59.3% in the third quarter)  increase in earned  premiums and also to increased
net investment income and an improved combined loss and expense ratio.

     Fully diluted net income per share,  which reflects the  two-for-one  stock
split effective on October 28, 1997, increased 47.5% to $0.87 for the first nine
months of 1997  compared  to $0.59 per share for the first nine  months of 1996.
Net income per share for the third  quarter of 1997 was $0.34 on a fully diluted
basis  compared  to $0.21  per  share  for the same  period  of 1996.  Operating
earnings  per share  were $0.86 for the first nine  months of 1997  compared  to
$0.60 for the first nine months of 1996, an increase of 45%.  Operating earnings
exclude realized gains of approximately $77,000 in the first nine months of 1997
and realized losses of approximately $154,000 in the same period of 1996.

     New insurance written,  which includes insurance on new and seasoned loans,
was $3.1  billion for the first nine months of 1997 as compared to $1.6  billion
for the same period of 1996, an increase of 87.9%.  For the third  quarter,  new
insurance  written  increased  95.8% to $1.1  billion in 1997  compared  to $576
million in 1996.  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 Triad's new risk sharing products. Of the $3.1 billion in
total new insurance production, $952 million was attributable to seasoned loans.
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 favorable  interest rate environment in the first nine months of
1997 caused home buying activities to remain strong. Refinance activity declined
to 13.0% of new  insurance  written in the first nine months of 1997 compared to
18.8% of insurance written in the same period of 1996. Total direct insurance in
force  reached $8.8 billion at  September  30, 1997  compared to $6.2 billion at
September 30, 1996, an increase of 41.8%.

     Net new insurance  written,  which includes coverage on new loans only, was
$2.1 billion for the first nine months of 1997  compared to $1.6 billion for the
same period of 1996, an increase of 30.1%.  Management expects almost all of the
production  in the remainder of 1997 and 1998 to be comprised of coverage on new
loans.  According to industry  data,  Triad's  national  market share,  which is


                                       10

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


calculated based on net new insurance written, increased by approximately 47% to
2.5% for the nine months of 1997 compared to 1.7% for the same period of 1996.

     Regulatory and industry  issues exist  regarding the future of certain risk
sharing programs,  such as captive reinsurance,  currently being marketed within
the mortgage insurance industry.  In the first nine months of 1997 a significant
portion  of Triad's  production,  which does not  include  captive  reinsurance,
resulted from Triad's new risk sharing programs.  However, the resolution of the
regulatory  and industry  questions  regarding  risk sharing  programs makes the
continued viability of such programs uncertain.

     Total direct premiums  written were $28.6 million for the first nine months
of 1997,  an  increase  of 50.6%  compared  to $19.0  million for the first nine
months of 1996. Net premiums written  increased by 56.6% to $27.1 million in the
first nine months of 1997 compared to $17.3 million for the same period in 1996.
Earned  premiums  increased  53.3% to $27.2 million for the first nine months of
1997 from $17.8 million in the first nine months of 1996.  Contributing  to this
growth in written and earned premium was the increase in new insurance  written,
offset slightly by the decline in the Company's  persistency  rate.  Sales under
the Company's monthly premium plan represented 93.5% of new insurance written in
the first  nine  months of 1997  compared  to 92.7% in the same  period of 1996.
Annualized  persistency  was 84.1% for the first nine months of 1997 compared to
84.3% for the first nine months of 1996.

     In the 1996 fourth quarter,  Triad  introduced its revised Stick With Triad
program  featuring the Slam Dunk Loan SM approval process whereby Triad issues a
certificate of insurance based on the borrower's  credit score.  The popularity,
to a large extent, of this product has reduced customer use of Triad's delegated
underwriting   program.   Commitments   processed   through  Triad's   delegated
underwriting  program accounted for 12.9% of commitments  received for the first
nine  months of 1997,  compared  to 38.1% in the first  nine  months of 1996 and
38.0% for all of 1996.

     Net investment income for the first nine months of 1997 was $4.7 million, a
17.3% increase over $4.0 million in the first nine months of 1996. This increase
resulted from the growth in average  invested  assets of $13.4 million to $101.5
million at  September  30, 1997 from $88.1  million at September  30, 1996.  The
yield on average invested assets  increased  slightly to 6.2% for the first nine
months of 1997  compared  to 6.1% for the same period of 1996.  The  portfolio's
tax-equivalent yield was 7.9% for the first nine months of 1997 up from 7.7% for
all of 1996.  Approximately 67% or $66.5 million of the Company's fixed maturity
portfolio   at  September   30,  1997  was  composed  of  state  and   municipal
tax-preferred  securities  as compared  to 53% at  December  31, 1996 and 37% at
December 31, 1995.


                                       11

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


     The Company's loss ratio (the ratio of incurred losses to earned  premiums)
was 14.0%  for the first  nine  months  of 1997  compared  to 12.8% for the same
period of 1996 and 13.3% for all of 1996. The loss ratio was 14.6% for the third
quarter of 1997 compared to 15.6% for the third  quarter of 1996.  The Company's
favorable  loss ratio  reflects the low level of  delinquencies  compared to the
number of insured  loans and the fact that  approximately  74% 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.

     Net losses and loss  adjustment  expenses (net of  reinsurance  recoveries)
increased by 66.9% in the first nine months of 1997 to $3.8 million  compared to
$2.3  million  in the first  nine  months of 1996.  Losses  and loss  adjustment
expenses  for the  third  quarter  of 1997 were $1.5  million  compared  to $1.0
million for the third quarter 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 24.4% to
$3.0  million in the first nine months of 1997  compared to $2.4 million for the
first nine months of 1996.  These costs were $1.0 million for the third  quarter
of 1997  compared  to  $817,000  for the third  quarter of 1996,  an increase of
28.5%.  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 $7.4  million  for the first nine
months of 1997  compared to $5.2  million  for the same period in 1996.  For the
third quarter of 1997,  other operating  expense  increased to $2.7 million from
$1.8  million  in the third  quarter  of 1996.  This  increase  in  expenses  is
primarily attributable to advertising, personnel, facilities and equipment costs
required to support the Company's product development,  technology enhancements,
geographic expansion and increased production.

     The expense ratio (ratio of underwriting  expenses to net premiums written)
for the first nine months of 1997 was 38.3% compared to 44.1% for the first nine
months  of 1996 and  43.8%  for all of 1996.  The  expense  ratio  for the third

                                       12

<PAGE>


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


quarter  of  1997  improved  to  35.4%  from  39.8%  reported  a  year  earlier.
Contributing  to this  improvement  is the  higher  level  of  written  premiums
partially offset by the increase in expenses.

     The effective tax rate for the first nine months of 1997 was 31.4% compared
to 30.8% in the first nine months 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 nine  months of 1997 of $12.7  million  compared  to $9.4  million for the
first nine months of 1996. The increase in Triad's  operating cash flow reflects
the growth in insurance written and insurance in force 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.

     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.  Triad
had an earned  surplus of $1.7  million at  September  30, 1997 and a deficit of
$1.3 million at December 31,  1996.  Triad has no immediate  plans to pay a cash
dividend  to the parent  company.  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 $113.8  million at September  30, 1997,
including  a total of $109.8  million in fixed  maturity  securities  and equity
securities classified as available- for-sale. Net unrealized investment gains on

                                       13

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


equity  securities were $2.3 million and on fixed maturity  securities were $3.3
million at September 30, 1997.

     Approximately  7.5%  or  $7.2  million  of  the  Company's  fixed  maturity
portfolio at  September  30, 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  September  30,  1997  was  $3.3  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 $8.3 million at September 30, 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 $22,600 at September 30, 1997
and $23,100 at December 31, 1996. The Company's  delinquency ratio, the ratio of
delinquent insured loans to total insured loans, was 0.46% at September 30, 1997
compared to 0.44% at December 31, 1996.

     The  Company's  unearned  premium  reserve of $8.1 million at September 30,
1997  decreased  from $8.2  million  at  December  31,  1996.  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.  Refinance  activity is also  responsible for the decrease in
unearned premiums, whereby older annual premium policies are replaced by monthly
premium policies.

                                       14

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


     Total  stockholders'  equity  increased to $106.0  million at September 30,
1997 from $91.7 million at December 31, 1996.  This  increase  resulted from net
income of $12.2  million  for the  first  nine  months of 1997 and an  increase,
during  1997,  in  net  unrealized  gains  on  invested  assets   classified  as
available-for-sale of $2.1 million (net of income tax).

     Triad's total statutory  policyholders'  surplus increased to $60.1 million
at September  30, 1997 from $57.1  million at December 31, 1996.  This  increase
resulted from statutory net income of $16.5 million and unrealized gains of $1.1
million offset primarily by an increase in the statutory  contingency reserve of
$13.9 million.  Triad's  statutory  earned surplus was $1.7 million at September
30, 1997 compared to a deficit of $1.3 million at December 31, 1996,  reflecting
growth in  statutory  net income  greater  than the  increase  in the  statutory
contingency reserve. The balance in the statutory  contingency reserve was $49.0
million at September 30, 1997 compared to $35.1 million at December 31, 1996.

     The Company expects to incur aggregate capital costs of approximately  $2.0
million  in 1997 and 1998 to  upgrade  and  enhance  its  computer  systems  and
technological  capabilities.  The Company expects to fund such expenditures with
cash flow from operations.  As a part of this effort, management has initiated a
program to prepare the Company's  computer  systems and  applications to be 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 prepare the  systems  for the year 2000.  Most of the
modifications  will be made as part  of the  Company's  capital  upgrade  to its
computer systems throughout the remainder of 1997 and 1998.

     Triad's ability to write insurance depends on the adequacy of its statutory
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.   Freddie   Mac  and  Fannie  Mae   require   Triad  to   maintain  a
risk-to-capital ratio of no more than 25-to-1. A number of states also generally
limit Triad's risk-to-capital ratio to 25-to-1. As of September 30, 1997 Triad's
risk-to-capital ratio was 18.9-to-1,  and as of December 31, 1996 was 15.8-to-1,
as compared to 19.4-to-1  for the industry as a whole at December 31, 1996,  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  the  Company's  needs and  alternatives  for
additional  capital  for  Triad.  Management  anticipates  initiating  a private
placement offering of up to $35 million in the fourth quarter of 1997.


                                       15

<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  basic earnings per share, the dilutive effect
of stock options will be excluded.  The impact of calculating basic earnings per
share is expected to result in an increase in primary earnings per share for the
three and nine month  periods  ended  September 30, 1997 of $ 0.02 and $0.04 per
share,  respectively.  For the three and nine month periods ended  September 30,
1996, the impact of Statement 128 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.

     In June 1997, the Financial Accounting Standards Board issued Statement No.
130,  Reporting  Comprehensive  Income  which  is  effective  for  fiscal  years
beginning after December 31, 1997. The Statement  establishes  standards for the
reporting and display of  comprehensive  income and its  components in financial
statements.  The Company expects to adopt the provisions of Statement No. 130 in
the first  quarter of 1998 and will  reclassify  the  financial  statements  for
earlier periods provided for comparative  purposes as required by the Statement.
The  application  of the new  rules  will not have an  impact  on the  Company's
financial position or results of operations.

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  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 - None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES - None

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

ITEM 5.  OTHER INFORMATION - None

ITEM 6.  a.  EXHIBITS


                 Exhibit No.                    Description
                 -----------                    -----------
                      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: November 13, 1997
                                          /s/ Michael R. Oswalt
                                          -----------------------------
                                          Michael R. Oswalt
                                          Vice President and Controller,
                                          Principal Accounting Officer



                                       17

<PAGE>


                                  EXHIBIT INDEX




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
























                                       18