##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2008
 OR
 o
    
    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 or other jurisdiction of
    
    (I.R.S. Employerincorporation or organization)
    
    Identification No.)101 South Stratford Road
    
    27104Winston-Salem, North Carolina
    
    (Zip Code)(Address of principal executive offices)
 (336) 723-1282  (Registrants telephone number, including area code)
 þ o
  Large accelerated filer
o
    
    Accelerated filer
þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TRIAD GUARANTY INC.
  
 INDEX
 PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2008
(Unaudited) and December 31, 2007
    
    
    1Consolidated Statements of Operations for the Three
Months Ended March 31, 2008 and 2007 (Unaudited)
    
    
    2Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2008 and 2007 (Unaudited)
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    44Item 4. Controls and Procedures
    
    
    44Part II. Other InformationItem 1A. Risk Factors
    
    
    45Item 6. Exhibits
    
    
    46Signature
    
    
    47Exhibit Index
    
    
    48Exhibit 10.51Exhibit 10.52Exhibit 10.53Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 TRIAD GUARANTY INC.
 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,(dollars in thousands, except per share data)
    
    2008
    
    
    2007(unaudited)
    
    
    (audited)ASSETSInvested assets:Securities available-for-sale, at fair value:Fixed maturities (amortized cost: $743,267 and $710,924)
    
    $
    746,380
    
    
    $
    725,631Equity securities (cost: $2,270 and $2,520)
    
    
    1,957
    
    
    
    2,162Short-term investments
    
    
    11,736
    
    
    
    56,746Total invested assets
    
    
    760,073
    
    
    
    784,539Cash and cash equivalents
    
    
    80,544
    
    
    
    124,811Real estate acquired in claim settlement
    
    
    8,993
    
    
    
    10,860Accrued investment income
    
    
    9,706
    
    
    
    10,246Deferred policy acquisition costs
    
    
    
    
    
    
    36,243Prepaid federal income taxes
    
    
    115,598
    
    
    
    116,008Property and equipment
    
    
    10,548
    
    
    
    11,421Reinsurance recoverable, net
    
    
    93,244
    
    
    
    5,815Other assets
    
    
    32,318
    
    
    
    32,910Total assets
    
    $
    1,111,024
    
    
    $
    1,132,853LIABILITIES AND STOCKHOLDERS EQUITYLiabilities:Losses and loss adjustment expenses
    
    $
    547,766
    
    
    $
    359,939Premium deficiency reserve
    
    
    96,073
    
    
    
    Unearned premiums
    
    
    19,169
    
    
    
    17,793Amounts payable to reinsurers
    
    
    3,849
    
    
    
    6,525Deferred income taxes
    
    
    61,522
    
    
    
    123,297Revolving line of credit
    
    
    
    
    
    
    80,000Long-term debt
    
    
    34,522
    
    
    
    34,519Accrued interest on debt
    
    
    584
    
    
    
    1,355Accrued expenses and other liabilities
    
    
    9,097
    
    
    
    10,574Total liabilities
    
    
    772,582
    
    
    
    634,002Commitments
and contingencies  Note 4Stockholders equity:Preferred stock, par value $0.01 per share  authorized 1,000,000
shares; no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01 per share  authorized 32,000,000
shares; issued and outstanding 15,117,733 shares at March 31,
2008 and 14,920,243 shares at December 31, 2007
    
    
    151
    
    
    
    149Additional paid-in capital
    
    
    110,359
    
    
    
    109,679Accumulated other comprehensive income, net of income tax liability
of $1,568 at March 31, 2008 and $6,475 at December 31, 2007
    
    
    2,328
    
    
    
    13,405Retained earnings
    
    
    225,604
    
    
    
    375,618Total stockholders equity
    
    
    338,442
    
    
    
    498,851Total liabilities and stockholders equity
    
    $
    1,111,024
    
    
    $
    1,132,853
  1




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TRIAD GUARANTY INC.
 
 CONSOLIDATED STATEMENT OF OPERATIONS
 (unaudited)
 Three Months EndedMarch 31,(dollars in thousands, except per share data)
    
    2008
    
    
    2007Revenue:Premiums written:Direct
    
    $
    89,386
    
    
    $
    78,408Ceded
    
    
    (15,995
    )
    
    
    (12,701
    )Net premiums written
    
    
    73,391
    
    
    
    65,707Change in unearned premiums
    
    
    (1,326
    )
    
    
    (1,758
    )Earned premiums
    
    
    72,065
    
    
    
    63,949Net investment income
    
    
    9,546
    
    
    
    7,349Net realized investment gains
    
    
    2,703
    
    
    
    761Other income
    
    
    2
    
    
    
    284,316
    
    
    
    72,061Losses and expenses:Net losses and loss adjustment expenses
    
    
    221,259
    
    
    
    32,581Net change in premium deficiency reserve
    
    
    15,000
    
    
    
    Interest expense on debt
    
    
    1,476
    
    
    
    694Policy acquisition costs
    
    
    39,416
    
    
    
    4,624Other
operating expenses (net of acquisition costs deferred)
    
    
    14,105
    
    
    
    10,330291,256
    
    
    
    48,229(Loss) income before income taxes (benefit)
    
    
    (206,940
    )
    
    
    23,832Income taxes (benefit):Current
    
    
    (3
    )
    
    
    1,759Deferred
    
    
    (56,923
    )
    
    
    4,751(56,926
    )
    
    
    6,510Net (loss) income
    
    $
    (150,014
    )
    
    $
    17,322(Loss) earnings per common and common
equivalent share:Basic
    
    $
    (10.09
    )
    
    $
    1.17Diluted
    
    $
    (10.09
    )
    
    $
    1.16Shares used in computing (loss) earnings per
common
and common equivalent share:Basic
    
    
    14,868,610
    
    
    
    14,818,900Diluted
    
    
    14,868,610
    
    
    
    14,946,166
 .
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TRIAD GUARANTY INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOW
 (unaudited)
 Three Months EndedMarch 31,(dollars in thousands)
    
    2008
    
    
    2007Operating activitiesNet (loss) income
    
    $
    (150,014
    )
    
    $
    17,322Adjustments to reconcile net income (loss) to net cash provided by
operating activities:Losses, loss adjustment expenses and unearned premium reserves
    
    
    189,203
    
    
    
    16,198Net change in premium deficiency reserve
    
    
    15,000
    
    
    
    Accrued expenses and other liabilities
    
    
    (1,333
    )
    
    
    (2,093
    )Current taxes payable
    
    
    
    
    
    
    1,606Amounts payable to reinsurer
    
    
    2,676
    
    
    
    185Accrued investment income
    
    
    522
    
    
    
    179Policy acquisition costs deferred
    
    
    (3,173
    )
    
    
    (4,515
    )Policy acquisition costs
    
    
    39,416
    
    
    
    4,623Net realized investment gains
    
    
    (2,703
    )
    
    
    (761
    )Provision for depreciation
    
    
    1,566
    
    
    
    532Accretion of discount on investments
    
    
    324
    
    
    
    129Deferred income taxes
    
    
    (56,923
    )
    
    
    4,751Prepaid federal income taxes
    
    
    410
    
    
    
    215Real estate acquired in claim settlement, net of write-downs
    
    
    1,867
    
    
    
    406Accrued interest on debt
    
    
    (771
    )
    
    
    (691
    )Other assets
    
    
    406
    
    
    
    (2,793
    )Other operating activities
    
    
    (10,576
    )
    
    
    1,362Net cash provided by operating activities
    
    
    25,897
    
    
    
    36,655Investing activitiesSecurities available-for-sale:Purchases  fixed maturities
    
    
    (136,426
    )
    
    
    (62,304
    )Sales  fixed maturities
    
    
    96,428
    
    
    
    35,296Maturities  fixed maturities
    
    
    7,176
    
    
    
    2,287Purchases  equities
    
    
    
    
    
    
    (38
    )Sales  equities
    
    
    266
    
    
    
    672Net change in short-term investments
    
    
    43,180
    
    
    
    (39,993
    )Purchases of property and equipment
    
    
    (707
    )
    
    
    (1,544
    )Net cash provided by (used in) investing activities
    
    
    9,917
    
    
    
    (65,624
    )Financing activitiesPayments on revolving credit facility
    
    
    (80,000
    )
    
    
    Excess tax benefits from share-based compensation
    
    
    
    
    
    
    173Proceeds from exercise of stock options
    
    
    
    
    
    
    616Net cash (used in) provided by financing activities
    
    
    (80,000
    )
    
    
    789Foreign currency translation adjustment on cash and cash equivalents
    
    
    (81
    )
    
    
    Net change in cash and cash equivalents
    
    
    (44,267
    )
    
    
    (28,180
    )Cash and cash equivalents at beginning of period
    
    
    124,811
    
    
    
    38,609Cash and cash equivalents at end of period
    
    $
    80,544
    
    
    $
    10,429Supplemental schedule of cash flow informationCash (received) paid during the period for:Income taxes and United States Mortgage Guaranty
Tax and Loss Bonds
    
    $
    (410
    )
    
    $
    34,454Interest
    
    $
    2,248
    
    
    $
    2,765
  3




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TRIAD GUARANTY INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2008
  1. The Company
   2. Accounting Policies and Basis of Presentation
 Basis of Presentation
  4




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Recent Accounting Pronouncements
 Fair Value Measurements,
 Fair Value Measurements at Reporting Date UsingQuotedPrices inActive
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableMarch 31,
    
    
    Assets
    
    
    Inputs
    
    
    Inputs(dollars in thousands)
    
    2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsSecurities available-for-saleFixed maturities
    
    $
    746,380
    
    
    $
    
    
    
    $
    743,035
    
    
    $
    3,345Equities
    
    
    1,957
    
    
    
    1,957
    
    
    
    
    
    
    
    Real estate acquired in claim
settlement
    
    
    8,993
    
    
    
    
    
    
    
    8,993
    
    
    
    Total
    
    $
    757,330
    
    
    $
    1,957
    
    
    $
    752,028
    
    
    $
    3,345
  Fair Value MeasurementUsing SignificantUnobservable Inputs(Level 3)Certain Bonds in Fixed(dollars in thousands)
    
    Maturities AFS PortfolioBeginning balance
    
    $
    7,402Total gains and losses (realized and unrealized):Included in operations
    
    
    (131
    )Included in other comprehensive income
    
    
    (43
    )Purchases, issuances and settlements
    
    
    (3,883
    )Transfers in and/or out of Level 3
    
    
    Ending balance
    
    $
    3,345The amount of total gains and loss for the period included
in operations attributable to the change in unrealized gains or
losses relating to assets still held at the reporting date.
    
    $
    (63
    )
  Noncontrolling Interests in Consolidated Financial
Statementsan amendment of ARB No. 51
 5




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Business Combinationsa replacement of FASB
Statement No. 141
 3. Consolidation
  4. Commitments and Contingencies
 Reinsurance
   6




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Insurance In Force, Dividend Restrictions, and Statutory Results
  March 31,
    
    
    December 31,
    
    
    March 31,(dollars in thousands)
    
    2008
    
    
    2007
    
    
    2007Net risk
    
    $
    11,969,155
    
    
    $
    11,967,179
    
    
    $
    9,757,134Statutory capital and surplus
    
    $
    203,352
    
    
    $
    197,713
    
    
    $
    152,396Statutory contingency reserve
    
    
    228,208
    
    
    
    387,365
    
    
    
    554,462Total
    
    $
    431,560
    
    
    $
    585,078
    
    
    $
    706,858Risk-to-capital ratio
    
    
    27.7 to 1
    
    
    
    20.5 to 1
    
    
    
    13.8 to 1
     7




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Loss Reserves
  Premium Deficiency
  Litigation
  5. Earnings (Loss) Per Share (EPS)
  8




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##### Table of Contents



6. Comprehensive Income (Loss)
  7. Income Taxes
  8. Long-Term Stock Incentive Plan
   Weighted-
    
    
    Aggregate
    
    
    Weighted-AverageNumber of
    
    
    Average
    
    
    Intrinsic
    
    
    Remaining(dollars in thousands)
    
    Shares
    
    
    Exercise Price
    
    
    Value
    
    
    Contractual TermOutstanding, January 1, 2008
    
    
    645,197
    
    
    $
    39.60Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Cancelled
    
    
    
    
    
    
    Outstanding, March 31, 2008
    
    
    645,197
    
    
    
    39.60
    
    
    $
    
    
    
    
    
    
    
    4.3 yearsExercisable, March 31, 2008
    
    
    496,409
    
    
    
    38.63
    
    
    $
    
    
    
    
    
    
    
    3.1 years
  9




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##### Table of Contents



March 31,
    
    March 31,2008
    
    2007Expected volatility
    
    
    n/a
    
    
    
    31.6
    %Expected dividend yield
    
    
    n/a
    
    
    
    0.0
    %Expected term
    
    
    n/a
    
    
    5.0 yearsRisk-free rate
    
    
    n/a
    
    
    
    4.4
    %
   Weighted-Number of
    
    Average Grant-Shares
    
    Date Fair ValueNonvested, January 1, 2008
    
    
    100,152
    
    
    $
    44.26Granted
    
    
    197,470
    
    
    
    6.26Vested
    
    
    31,902
    
    
    
    42.81Cancelled
    
    
    641
    
    
    
    46.02Nonvested, March 31, 2008
    
    
    265,079
    
    
    
    16.12
    10




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Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   Overview
   11




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12




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Current Developments
     13




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14




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Consolidated Results of Operations
  Three Months EndedMarch 31,(dollars in thousands, except
    
    
    
    
    
    %per share data)
    
    2008
    
    2007
    
    ChangeEarned premiums
    
    $
    72,065
    
    
    $
    63,949
    
    
    
    13
    %Net losses and loss adjustment
expenses
    
    
    221,259
    
    
    
    32,581
    
    
    
    579Net (loss) income
    
    
    (150,014
    )
    
    
    17,322
    
    
    
    (966
    )Diluted (loss) earnings per share
    
    $
    (10.09
    )
    
    $
    1.16
    
    
    
    (970
    )
    15




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Production
  Three Months EndedMarch 31,(dollars in millions)
    
    2008
    
    
    2007
    
    
    % ChangePrimary insurance written:Flow
    
    $
    1,913
    
    
    $
    4,372
    
    
    
    (56
    )%Structured bulk
    
    
    
    
    
    
    1,327
    
    
    
    (100
    )Total Primary insurance written
    
    $
    1,913
    
    
    $
    5,699
    
    
    
    (66
    )Modified Pool insurance written
    
    
    
    
    
    
    1,925
    
    
    
    (100
    )Total insurance written
    
    $
    1,913
    
    
    $
    7,624
    
    
    
    (75
    )%
  
    
    American Home Mortgage Corp. (AHM) was our largest customer in the first
quarter of 2007, contributing $1.7 billion, or 38 % of our total Primary flow NIW.
AHM filed for
protection under Chapter 11 of the U.S. Bankruptcy Code during the third quarter of
2007 and, as a result, AHM is not originating any mortgages.
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##### Table of Contents




    
    Bulk insurance is a term that describes Primary and Modified Pool mortgage
insurance written for a group of loans that is generally securitized in the secondary
market. Mortgage insurance provides loss protection to the issuer and thus increases
the credit rating and pricing of the securitization. We had no structured bulk
production in either Primary or Modified Pool in the first quarter of 2008 and we do
not expect any further structured bulk production in the future.
    
    At December 31, 2007, our risk to capital ratio was 20.5-to-1. The maximum risk
to capital ratio permitted by most states is generally 25.0-to-1. Our risk to capital
ratio has increased over the last seven quarters, partially as the result of
operating losses experienced in the last three quarters. In order to manage our risk
to capital ratio in this environment, we were carefully monitoring the writing of new
business and allocating our capital against what we believe to be the most promising
opportunities. The effect of this was to limit the writing of new business in an
attempt to decrease the risk in force. While production was limited and actual risk
in force dropped during the first quarter of 2008, additional operating losses
resulted in a risk to capital ratio of 27.7-to-1 at March 31, 2008.
    
    During the first quarter of 2007, we wrote approximately $600 million of NIW in
connection with a special lender-paid program that was not repeated in 2008.
    
    At December 31, 2007, our exposure to loans with LTVs of greater than 95%
represented 32.6% of Primary NIW. We are reducing the risk in our portfolio through
tightened underwriting guidelines and are limiting our exposure to loans with LTVs of
greater than 95%. As a result, loans with an LTV greater than 95% represented 9.6% of
Primary NIW during the first quarter of 2008.
   17




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Market Share by Channel
 Three Months EndedMarch 31,2008
    
    2007Flow channel
    
    
    2.7
    %
    
    
    9.0
    %Structured bulk channel
    
    
    0.0
    %
    
    
    13.0
    %Total
    
    
    2.7
    %
    
    
    10.3
    %
   Credit Quality of Primary NIW
 Three Months EndedMarch 31,2008
    
    2007Prime
    
    
    96.0
    %
    
    
    56.6
    %Alt-A
    
    
    2.4
    %
    
    
    41.4
    %A-Minus
    
    
    1.5
    %
    
    
    1.7
    %Sub Prime
    
    
    0.1
    %
    
    
    0.3
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  Loan Type of Primary NIW
 Three Months EndedMarch 31,2008
    
    2007Fixed
    
    
    89.0
    %
    
    
    46.6
    %ARM (positive amortization)
    
    
    10.8
    %
    
    
    24.2
    %ARM (potential negative
amortization)
    
    
    0.2
    %
    
    
    29.2
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
  18




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Three Months EndedMarch 31,2008
    
    2007Greater than 95%
    
    
    9.6
    %
    
    
    26.2
    %90.01% to 95.00%
    
    
    29.1
    %
    
    
    23.8
    %90.00% and below
    
    
    61.3
    %
    
    
    50.0
    %Total
    
    
    100.0
    %
    
    
    100.0
    %
 Insurance and Risk in Force
  March 31,(dollars in millions)
    
    2008
    
    
    2007
    
    
    % ChangePrimary insurance:Flow primary insurance
    
    $
    42,086
    
    
    $
    35,366
    
    
    
    19
    %Structured bulk insurance
    
    
    4,374
    
    
    
    2,616
    
    
    
    67Total Primary insurance
    
    
    46,460
    
    
    
    37,982
    
    
    
    22Modified pool insurance
    
    
    21,187
    
    
    
    23,507
    
    
    
    (10
    )Total insurance
    
    $
    67,647
    
    
    $
    61,489
    
    
    
    10
    %
   
    
    The percentage of business defined as non-prime credit quality;
    
    The percentage of Alt-A business;
    
    The percentage of business with an LTV greater than 95%;
    
    The percentage of interest only loans and ARMs with potential negative amortization;
    
    The percentage of condominium property types;
    
    The percentage of non-primary residence occupancy status;
    
    The percentage of loans in excess of $250,000;
    
    The concentration of risk in distressed market states; and
    
    The presence of multiple risk factors on a single insured loan.
 19




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Risk in Force (1)
 Primary
    
    
    Modified PoolMarch, 31
    
    
    March, 31(dollars in millions)
    
    2008
    
    
    2007
    
    
    2008
    
    
    2007Direct Risk in Force
    
    $
    12,126
    
    
    $
    9,781
    
    
    $
    903
    
    
    $
    933Net Risk In Force
    
    
    11,141
    
    
    
    8,937
    
    
    
    795
    
    
    
    819Credit Quality:Prime
    
    
    75.2
    %
    
    
    76.3
    %
    
    
    27.8
    %
    
    
    29.9
    %Alt-A
    
    
    21.2
    
    
    
    20.0
    
    
    
    71.4
    
    
    
    69.2A-Minus
    
    
    3.1
    
    
    
    3.2
    
    
    
    0.7
    
    
    
    0.8Sub Prime
    
    
    0.5
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    0.1Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %LTV:Greater than 95%
    
    
    25.3
    %
    
    
    19.4
    %
    
    
    
    %
    
    
    
    %90.01% to 95.00%
    
    
    32.6
    
    
    
    74.4
    
    
    
    0.3
    
    
    
    1.090.00% and below
    
    
    42.1
    
    
    
    6.2
    
    
    
    99.7
    
    
    
    99.0Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Loan Type:Fixed
    
    
    65.5
    %
    
    
    64.4
    %
    
    
    26.1
    %
    
    
    28.2
    %Interest Only
    
    
    10.6
    
    
    
    7.4
    
    
    
    23.4
    
    
    
    23.0ARM (amortizing) fixed period 5 years or
greater
    
    
    9.1
    
    
    
    11.0
    
    
    
    31.5
    
    
    
    32.5ARM (amortizing) fixed period less than 5
years
    
    
    2.3
    
    
    
    3.6
    
    
    
    5.8
    
    
    
    4.3ARM (potential negative amortization)
    
    
    12.5
    
    
    
    13.6
    
    
    
    13.2
    
    
    
    12.0Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Property Type:Condominium
    
    
    10.5
    %
    
    
    10.1
    %
    
    
    9.5
    %
    
    
    8.9
    %Other (principally single-family detached)
    
    
    89.5
    
    
    
    89.9
    
    
    
    90.5
    
    
    
    91.1Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Occupancy Status:Primary residence
    
    
    87.7
    %
    
    
    88.1
    %
    
    
    88.1
    %
    
    
    73.8
    %Secondary home
    
    
    7.9
    
    
    
    7.7
    
    
    
    7.7
    
    
    
    6.1Non-owner occupied
    
    
    4.4
    
    
    
    4.2
    
    
    
    4.2
    
    
    
    20.1Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Mortgage Amount:$0 - $50,000
    
    
    0.9
    %
    
    
    1.1
    %
    
    
    0.5
    %
    
    
    0.5
    %$51,000 - $100,000
    
    
    9.5
    
    
    
    11.7
    
    
    
    5.3
    
    
    
    5.6$100,001 - $250,000
    
    
    51.8
    
    
    
    54.6
    
    
    
    45.5
    
    
    
    46.4$250,001 - $500,000
    
    
    31.9
    
    
    
    27.2
    
    
    
    42.2
    
    
    
    41.5Over $500,000
    
    
    5.9
    
    
    
    5.4
    
    
    
    6.5
    
    
    
    6.0Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Market Status:Distressed market states (AZ, CA, FL, NV)
    
    
    27.1
    %
    
    
    25.0
    %
    
    
    48.3
    %
    
    
    46.2
    %Non-distressed market states
    
    
    72.9
    
    
    
    75.0
    
    
    
    51.7
    
    
    
    53.8Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Percentages represent distribution of direct risk in force on a per policy basis and do not
account
for applicable stop-loss amounts or deductibles on Modified Pool.  20




---



##### Table of Contents



Primary
    
    
    Modified Pool *March 31, 2008
    
    
    March 31, 2008Direct Risk
    
    
    
    
    
    
    Direct Risk(dollars in millions)
    
    in Force
    
    
    Percent
    
    
    in Force
    
    
    Percent2002 and before
    
    $
    618.4
    
    
    
    5.1
    %
    
    $
    38.2
    
    
    
    4.8
    %2003
    
    
    1,115.6
    
    
    
    9.2
    
    
    
    110.5
    
    
    
    13.92004
    
    
    1,067.1
    
    
    
    8.8
    
    
    
    127.2
    
    
    
    16.02005
    
    
    1,564.2
    
    
    
    12.9
    
    
    
    220.2
    
    
    
    27.72006
    
    
    2,619.2
    
    
    
    21.6
    
    
    
    267.9
    
    
    
    33.72007
    
    
    4,765.4
    
    
    
    39.3
    
    
    
    31.0
    
    
    
    3.92008
    
    
    375.9
    
    
    
    3.1
    
    
    
    
    
    
    
    Total
    
    $
    12,125.8
    
    
    
    100.0
    %
    
    $
    795.0
    
    
    
    100.0
    %
 
 *
    
    For Modified Pool, the Direct Risk in Force is calculated utilizing the particular stop-loss
limits and
deductibles within each specific structure   21




---



##### Table of Contents



Revenues
  Three Months EndedMarch 31,(dollars in thousands)
    
    2008
    
    
    2007
    
    
    % ChangeDirect premium written
    
    $
    89,386
    
    
    $
    78,408
    
    
    
    14
    %Ceded premium written
    
    
    (15,995
    )
    
    
    (12,701
    )
    
    
    26Net premium written
    
    
    73,391
    
    
    
    65,707
    
    
    
    12Change in unearned premiums
    
    
    (1,326
    )
    
    
    (1,758
    )
    
    
    (25
    )Earned premiums
    
    $
    72,065
    
    
    $
    63,949
    
    
    
    13
    %Net investment income
    
    $
    9,546
    
    
    $
    7,349
    
    
    
    30
    %Total revenues
    
    $
    84,316
    
    
    $
    72,061
    
    
    
    17
    %
     22




---



##### Table of Contents



Losses and Expenses
  Three Months EndedMarch 31,(dollars in thousands)
    
    2008
    
    2007
    
    % ChangeNet losses and loss adjustment
expenses
    
    $
    221,259
    
    
    $
    32,581
    
    
    
    579
    %Net change in premium deficiency
    
    
    15,000
    
    
    
    
    
    
    
    100Policy acquisition costs
    
    
    39,416
    
    
    
    4,624
    
    
    
    752Other operating expenses (net
of acquisition
    
    
    14,105
    
    
    
    10,330
    
    
    
    37costs deferred)Loss ratio
    
    
    307.0
    %
    
    
    50.9
    %
    
    
    503Expense ratio
    
    
    25.5
    %
    
    
    22.8
    %
    
    
    12Combined ratio
    
    
    332.5
    %
    
    
    73.7
    %
    
    
    351
     23




---



##### Table of Contents



Three Months EndedMarch 31,(dollars in thousands)
    
    2008
    
    
    2007
    
    
    % ChangePaid claims:Primary insurance
    
    $
    29,235
    
    
    $
    16,447
    
    
    
    77.8
    %Modified Pool insurance
    
    
    10,852
    
    
    
    1,281
    
    
    
    747.2Total
    
    $
    40,087
    
    
    $
    17,728
    
    
    
    126.1
    %Number of claims paid:Primary insurance
    
    
    686
    
    
    
    526
    
    
    
    30.4
    %Modified Pool insurance
    
    
    167
    
    
    
    54
    
    
    
    209.3Total
    
    
    853
    
    
    
    580
    
    
    
    47.1
    %
   Primary
    
    Modified PoolAverage
    
    Average
    
    Average
    
    AverageLoan Size
    
    Insured Risk
    
    Loan Size
    
    Insured RiskVintage Year2002 and Prior
    
    $
    105,490
    
    
    $
    26,750
    
    
    $
    79,685
    
    
    $
    25,7982003
    
    
    118,838
    
    
    
    28,565
    
    
    
    145,256
    
    
    
    42,8682004
    
    
    131,975
    
    
    
    34,977
    
    
    
    149,257
    
    
    
    44,2962005
    
    
    156,610
    
    
    
    40,860
    
    
    
    178,140
    
    
    
    57,9772006
    
    
    207,428
    
    
    
    53,581
    
    
    
    260,899
    
    
    
    69,4702007
    
    
    208,158
    
    
    
    56,300
    
    
    
    271,697
    
    
    
    79,3982008
    
    
    207,173
    
    
    
    48,707
    
    
    
    
    
    
    
    Overall Average
    
    $
    170,625
    
    
    $
    44,533
    
    
    $
    208,283
    
    
    $
    60,895
  24




---



##### Table of Contents



Cumulative Paid Loss Ratiosas of March 31,Certificate Year
    
    2008
    
    20071996
    
    
    14.5
    %
    
    
    14.5
    %1997
    
    
    10.3
    
    
    
    10.11998
    
    
    6.8
    
    
    
    6.61999
    
    
    9.8
    
    
    
    9.72000
    
    
    35.3
    
    
    
    35.02001
    
    
    31.3
    
    
    
    29.52002
    
    
    32.1
    
    
    
    30.32003
    
    
    17.6
    
    
    
    14.12004
    
    
    19.1
    
    
    
    12.42005
    
    
    27.3
    
    
    
    7.02006
    
    
    17.0
    
    
    
    0.72007
    
    
    1.6
    
    
    
    2008
    
    
    
   25




---



##### Table of Contents



March 31,
    
    
    December 31,
    
    
    March 31,(dollars in thousands)
    
    2008
    
    
    2007
    
    
    2007Primary insurance:Reserves for reported defaults
    
    $
    388,805
    
    
    $
    251,316
    
    
    $
    75,395Reserves for defaults incurred but not
reported
    
    
    40,601
    
    
    
    40,691
    
    
    
    6,521Total Primary insurance
    
    
    429,406
    
    
    
    292,007
    
    
    
    81,916Modified Pool insurance:Reserves for reported defaults
    
    
    102,118
    
    
    
    54,876
    
    
    
    14,898Reserves for defaults incurred but not
reported
    
    
    7,275
    
    
    
    8,340
    
    
    
    753Total Modified Pool insurance
    
    
    109,393
    
    
    
    63,216
    
    
    
    15,651Reserve for loss adjustment expenses
    
    
    8,967
    
    
    
    4,716
    
    
    
    1,154Total reserves for losses and loss adjustment
expenses
    
    $
    547,766
    
    
    $
    359,939
    
    
    $
    98,721
  Three Months EndedMarch 31,(dollars in thousands)
    
    2008
    
    2007
    
    % ChangeNet increase in reserve for
losses
and loss adjustment expenses
    
    $
    187,827
    
    
    $
    14,369
    
    
    
    1,207
    %
    26




---



##### Table of Contents



27




---



##### Table of Contents



March 31,
    
    
    December 31,
    
    
    March 31,(dollars in thousands)
    
    2008
    
    
    2007
    
    
    2007Risk In Force:California
    
    $
    1,975,148
    
    
    $
    1,962,700
    
    
    $
    1,641,618Florida
    
    
    1,671,297
    
    
    
    1,688,314
    
    
    
    1,405,476Arizona
    
    
    756,417
    
    
    
    764,685
    
    
    
    613,412Nevada
    
    
    406,466
    
    
    
    408,752
    
    
    
    323,551Total Distressed Market
States
    
    $
    4,809,327
    
    
    $
    4,824,451
    
    
    $
    3,984,058Total Risk in Force
    
    $
    14,946,401
    
    
    $
    15,030,500
    
    
    $
    12,643,891% in Distressed Market States
    
    
    32.2
    %
    
    
    32.1
    %
    
    
    31.5
    %Risk in Default:California
    
    $
    218,072
    
    
    $
    130,321
    
    
    $
    25,651Florida
    
    
    240,365
    
    
    
    149,841
    
    
    
    25,559Arizona
    
    
    58,516
    
    
    
    39,095
    
    
    
    7,934Nevada
    
    
    41,141
    
    
    
    27,411
    
    
    
    9,397Total Distressed Market
States
    
    $
    558,094
    
    
    $
    346,668
    
    
    $
    68,541Total Risk in Default
    
    $
    1,039,070
    
    
    $
    732,087
    
    
    $
    285,620% in Distressed Market States
    
    
    53.7
    %
    
    
    47.4
    %
    
    
    24.0
    %Reserves:California
    
    $
    116,234
    
    
    $
    62,516
    
    
    $
    7,207Florida
    
    
    126,351
    
    
    
    73,055
    
    
    
    7,414Arizona
    
    
    30,170
    
    
    
    18,517
    
    
    
    2,280Nevada
    
    
    21,771
    
    
    
    13,334
    
    
    
    2,301Total Distressed Market
States
    
    $
    294,525
    
    
    $
    167,422
    
    
    $
    19,201Total Reserves
    
    $
    547,766
    
    
    $
    359,939
    
    
    $
    98,721% in Distressed Market States
    
    
    53.8
    %
    
    
    46.5
    %
    
    
    19.4
    %
  March 31,
    
    December 31,
    
    March 31,(dollars in thousands)
    
    2008
    
    2007
    
    2007Risk on loans in default excluding loans
subject to deductibles
    
    $
    1,039,070
    
    
    $
    732,087
    
    
    $
    285,620Reserves as a percentage of risk in
default
    
    
    52.7
    %
    
    
    49.2
    %
    
    
    34.6
    %
  28




---



##### Table of Contents



March 31,
    
    December 31,
    
    March 31,(dollars in thousands)
    
    2008
    
    2007
    
    2007Total business:Number of insured loans in force
    
    
    374,012
    
    
    
    378,907
    
    
    
    354,037With deductibles
    
    
    57,515
    
    
    
    59,592
    
    
    
    68,597Without deductibles
    
    
    316,497
    
    
    
    319,315
    
    
    
    285,440Number of loans in default
    
    
    21,916
    
    
    
    16,821
    
    
    
    8,998With deductibles
    
    
    5,128
    
    
    
    4,072
    
    
    
    2,176Without deductibles
    
    
    16,788
    
    
    
    12,749
    
    
    
    6,822Percentage of loans in default (default rate)
    
    
    5.86
    %
    
    
    4.44
    %
    
    
    2.54
    %Percentage of loans in default excluding
deductibles
    
    
    5.30
    %
    
    
    3.99
    %
    
    
    2.39
    %Primary insurance:Number of insured loans in force
    
    
    272,289
    
    
    
    273,798
    
    
    
    239,326Number of loans in default
    
    
    13,322
    
    
    
    10,419
    
    
    
    5,632Percentage of loans in default
    
    
    4.89
    %
    
    
    3.81
    %
    
    
    2.35
    %Modified Pool insurance:Number of insured loans in force
    
    
    101,723
    
    
    
    105,109
    
    
    
    114,711With deductibles
    
    
    57,492
    
    
    
    59,569
    
    
    
    65,155Without deductibles
    
    
    44,231
    
    
    
    45,540
    
    
    
    49,556Number of loans in default
    
    
    8,594
    
    
    
    6,402
    
    
    
    3,366With deductibles
    
    
    5,128
    
    
    
    4,072
    
    
    
    2,176Without deductibles
    
    
    3,466
    
    
    
    2,330
    
    
    
    1,190Percentage of loans in default
    
    
    8.45
    %
    
    
    6.09
    %
    
    
    2.93
    %Percentage of loans in default excluding
deductibles
    
    
    7.84
    %
    
    
    5.12
    %
    
    
    2.40
    %Primary Alt-A business (included in above):Number of insured loans in force
    
    
    34,786
    
    
    
    35,980
    
    
    
    28,774Number of loans in default
    
    
    4,487
    
    
    
    3,102
    
    
    
    919Percentage of loans in default
    
    
    12.90
    %
    
    
    8.62
    %
    
    
    3.19
    %
   29




---



##### Table of Contents



30




---



##### Table of Contents



Significant Customers
  -
 Financial Position
 ,
 Deferred Policy Acquisition Costs
  31




---



##### Table of Contents



Prepaid Federal Income Taxes and Deferred Income Taxes
     Premium Deficiency Reserve
   32




---



##### Table of Contents



Investment Portfolio
 Portfolio Description
   March 31, 2008
    
    
    December 31, 2007(dollars in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentFixed maturity securities:U. S. government obligations
    
    $
    8,010
    
    
    
    1.1
    %
    
    $
    11,762
    
    
    
    1.5
    %State and municipal bonds
    
    
    726,098
    
    
    
    95.5
    %
    
    
    673,264
    
    
    
    85.8
    %Corporate bonds
    
    
    12,271
    
    
    
    1.6
    %
    
    
    40,605
    
    
    
    5.2
    %Mortgage-backed bonds
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Total fixed maturities
    
    
    746,379
    
    
    
    98.2
    %
    
    
    725,631
    
    
    
    92.5
    %Equity securities
    
    
    1,957
    
    
    
    0.3
    %
    
    
    2,162
    
    
    
    0.3
    %Total available-for-sale securities
    
    
    748,336
    
    
    
    98.5
    %
    
    
    727,793
    
    
    
    92.8
    %Other investments
    
    
    
    
    
    
    0.0
    %
    
    
    
    
    
    
    0.0
    %Short-term investments
    
    
    11,737
    
    
    
    1.5
    %
    
    
    56,746
    
    
    
    7.2
    %$
    760,073
    
    
    
    100.0
    %
    
    $
    784,539
    
    
    
    100.0
    %
  33




---



##### Table of Contents



March 31, 2008Carrying
    
    % of Total(dollars in thousands)
    
    Value
    
    Invested AssetsName of Creditor / IssuerState of Indiana
    
    $
    9,095
    
    
    
    1.20
    %Chicago, OHare Airport
    
    
    8,828
    
    
    
    1.16
    %State of Alabama
    
    
    8,501
    
    
    
    1.12
    %Metropolitan Transit Authority
    
    
    8,482
    
    
    
    1.12
    %National Rural Utilities
    
    
    6,990
    
    
    
    0.92
    %Charlotte-Mecklenburg Hospital Authority
    
    
    6,975
    
    
    
    0.92
    %Atlanta, Georgia Airport
    
    
    6,689
    
    
    
    0.88
    %State of Connecticut
    
    
    6,387
    
    
    
    0.84
    %Las Vegas, Nevada Water District
    
    
    6,268
    
    
    
    0.82
    %State of Illinois
    
    
    6,186
    
    
    
    0.81
    %
  Three Months EndedMarch 31,(dollars in thousands)
    
    2008
    
    2007Average investments at cost or amortized cost
    
    $
    763,732
    
    
    $
    623,673Pre-tax net investment income
    
    $
    9,547
    
    
    $
    7,349Pre-tax yield
    
    
    1.3
    %
    
    
    1.2
    %Tax-equivalent yield-to-maturity
    
    
    6.5
    %
    
    
    6.6
    %Pre-tax realized investment (losses) gains
    
    $
    2,703
    
    
    $
    761
  Unrealized Gains and Losses
  Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair(dollars in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueFixed maturity securities:U. S. government obligations
    
    $
    7,774
    
    
    $
    235
    
    
    $
    
    
    
    $
    8,009State and municipal bonds
    
    
    723,559
    
    
    
    11,164
    
    
    
    (8,623
    )
    
    
    726,100Corporate bonds
    
    
    11,934
    
    
    
    485
    
    
    
    (148
    )
    
    
    12,271Subtotal, fixed maturities
    
    
    743,267
    
    
    
    11,884
    
    
    
    (8,771
    )
    
    
    746,380Equity securities
    
    
    2,270
    
    
    
    
    
    
    
    (313
    )
    
    
    1,957Short term investments
    
    
    11,736
    
    
    
    
    
    
    
    
    
    
    
    11,736Total securities
    
    $
    757,273
    
    
    $
    11,884
    
    
    $
    (9,084
    )
    
    $
    760,073
 34




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Credit Risk
  March 31, 2008
    
    
    December 31, 2007(dollars in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentFixed Maturities:U.S. treasury and agency bonds
    
    $
    8,010
    
    
    
    1.1
    %
    
    $
    11,762
    
    
    
    1.6
    %AAA
    
    
    450,689
    
    
    
    60.4
    
    
    
    518,769
    
    
    
    71.5AA
    
    
    203,108
    
    
    
    27.2
    
    
    
    150,820
    
    
    
    20.8A
    
    
    63,340
    
    
    
    8.5
    
    
    
    25,774
    
    
    
    3.6BBB
    
    
    11,252
    
    
    
    1.5
    
    
    
    8,738
    
    
    
    1.2BB
    
    
    1,827
    
    
    
    0.2
    
    
    
    1,072
    
    
    
    0.1CCC
    
    
    5,027
    
    
    
    0.7
    
    
    
    5,591
    
    
    
    0.8CC and lower
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    0.0Not rated
    
    
    3,126
    
    
    
    0.4
    
    
    
    3,103
    
    
    
    0.4Total fixed maturities
    
    $
    746,379
    
    
    
    100.0
    %
    
    $
    725,631
    
    
    
    100.0
    %Equities:Preferred stocks:AA
    
    $
    820
    
    
    
    41.9
    %
    
    $
    745
    
    
    
    34.5
    %A
    
    
    898
    
    
    
    45.9
    
    
    
    883
    
    
    
    40.8BBB
    
    
    239
    
    
    
    12.2
    
    
    
    534
    
    
    
    24.71,957
    
    
    
    100.0
    
    
    
    2,162
    
    
    
    100.0Common stocks
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total equities
    
    $
    1,957
    
    
    
    100.0
    %
    
    $
    2,162
    
    
    
    100.0
    %
   35




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
    
    Length of time the fair value was below amortized cost;
    
    Industry factors or conditions related to a geographic area negatively affecting
the security;
    
    Downgrades by a rating agency;
    
    Past due interest or principal payments or other violation of covenants; and
    
    Deterioration of the overall financial condition of the specific issuer.
     Realized Gains (Losses) and Impairments
  36




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Liquidity and Capital Resources
  
     37




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38




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March 31,
    
    
    December 31,
    
    
    March 31,(dollars in millions)
    
    2008
    
    
    2007
    
    
    2007Statutory policyholders surplus
    
    $
    203.4
    
    
    $
    197.7
    
    
    $
    152.4Statutory contingency reserve
    
    
    228.2
    
    
    
    387.4
    
    
    
    554.5Total
    
    $
    431.6
    
    
    $
    585.1
    
    
    $
    706.9
    Off Balance Sheet Arrangements and Aggregate Contractual Obligations
   39




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Update on Critical Accounting Policies and Estimates
   Premium Deficiency
   40




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Sensitivity AnalysisEffect on Pretax Income from Changesin Assumptions in the PremiumDeficiency ComputationIncrease in PaidDecrease in Paid
    
    Claims or DecreaseClaims or Increase in
    
    in PremiumResulting
    
    Resulting in ain an Increase in
    
    (Decrease) in Pretax(dollars in thousands)
    
    Pretax Income *
    
    Income5% Increase (Decrease)
in the paid claims
utilized in the
computation of the
premium deficiency.
    
    $
    49,800
    
    
    $
    (97,100
    )5% Increase (Decrease)
in the amount of
premium utilized in the
computation of the
premium deficiency.
    
    $
    49,800
    
    
    $
    (70,000
    )5% Increase (Decrease)
in both the amount of
paid claims and amount
of premium utilized in
the computation of the
premium deficiency.
    
    $
    49,800
    
    
    $
    (167,100
    )
 
 *
    
    The benefit of the positive impact is limited to $49.8 million,
the amount in excess of the net reserves in the original premium deficiency computation.  41




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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
  
    
    if we are unable to negotiate definitive agreements with Lightyear Capital that
result in the creation of a new monoline private mortgage insurance company, we
likely will be required to cease writing new mortgage insurance and our wholly owned
insurance subsidiary will be placed in voluntary run-off;
    
    if Triad is prohibited from paying interest on the $25 million surplus note to the
parent company by the Illinois Division of Insurance, the parent company may
eventually default on the interest payments on the $35 million long-term debt;
    
    if the GSEs and insurance regulators conclude during the transition period to
restrict our qualifications as a mortgage insurer, we would not be able to write new
insurance and would be limited to servicing our remaining book of business;
    
    when we implement a voluntary run-off plan and our business is limited to
servicing our remaining book of in-force insurance, as we have previously announced
is likely to occur, we face additional regulatory and operating risks that could
further reduce or eliminate the market value of our common stock;
    
    if during voluntary run-off, the GSEs, our lender customers or investors exercise
their rights to transfer our remaining insurance in-force to other mortgage insurers
on a selective basis, it could have a material adverse effect on our financial
condition and results of operations;
    
    interest rates may increase or decrease from their current levels;
    
    housing prices may further decrease from their current levels;
    
    ongoing credit tightening in the mortgage marketplace may continue, thereby
reducing the ability of borrowers experiencing difficulty with loan payments to
refinance, which could cause an increased number of defaults and paid claims;
    
    housing transactions requiring mortgage insurance may decrease for many reasons,
including changes in interest rates or economic conditions or alternative credit
enhancement products;
    
    our financial condition could be affected by legislation or regulation impacting
the mortgage guaranty industry or the GSEs, specifically, and the financial services
industry in general;
    
    rating agencies may revise methodologies for determining our financial strength
ratings and may further revise, downgrade or withdraw the assigned ratings at any
time;
    
    decreases in persistency, which are affected by loan refinancings in periods of
low interest rates, may have an adverse effect on results of operations;
    
    if we fail to properly underwrite mortgage loans under contract underwriting
service agreements, we may be required to assume the costs of repurchasing those
loans;
    
    with consolidation occurring among mortgage lenders and our concentration of
insurance in force generated through relationships with significant lender customers,
our margins may be compressed and the loss of a significant customer or a change in
their business practices affecting mortgage insurance may have an adverse effect on
our results of operations;
    
    our performance may be impacted by changes in the performance of the financial
markets and general economic conditions;
    
    economic downturns in regions where our risk is more concentrated, such as the
distressed markets, could have a particularly adverse effect on our financial
condition and loss development;
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
    
    revisions in risk-based capital rules by the Office of Federal Housing Enterprise
Oversight for the GSEs could severely limit our ability to compete against various
types of credit and our risk-to-capital ratio may continue to grow, which could cause
us to face adverse regulatory action, rating agency action or both;
    
    proposed regulation by the Department of Housing and Urban Development to exclude
packages of real estate settlement services, which may include any required mortgage
insurance premium paid at closing, from the anti-referral provisions of the Real
Estate Settlement Procedures Act could adversely affect our results of operations;
    
    further changes in the eligibility guidelines of the GSEs could have an adverse
effect on results of operations and our ability to conduct our business; and
    
    our financial and competitive position could be affected by regulatory activity
requiring changes to mortgage industry business practices, such as captive
reinsurance.
  
 Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4. Controls and Procedures
 a)
    
    We carried out an evaluation, under the supervision and with the participation of our
management, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO),
of the effectiveness of our disclosure controls and procedures pursuant to Securities
Exchange Act of 1934 (Act) Rule 13a-15. Based on that evaluation, our management, including
our CEO and CFO, concluded, as of the end of the period covered by this report, that our
disclosure controls and procedures were effective to enable us to record, process,
summarize and report in a timely manner the information that we are required to disclose in
our reports under the Act. Disclosure controls and procedures include controls and
procedures designed to ensure that management, including our CEO and CFO, is alerted to
material information required to be disclosed in our filings under the Act so as to allow
timely decisions regarding our disclosures. In designing and evaluating disclosure controls
and procedures, we recognized that any controls and procedures, no matter how well designed
and operated, can provide only reasonable assurance of achieving the desired control
objectives, as ours are designed to do.b)
    
    There have been no changes in internal control over financial reporting during the
first quarter of 2008 that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
 44




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1A. Risk Factors
 If we are unable to negotiate definitive agreements with Lightyear Capital and close transactions
that result in the creation of a new monoline private mortgage insurance company, we likely will be
required to cease writing new mortgage insurance and our wholly owned insurance subsidiary will be
placed in voluntary run-off.
   If Fannie Mae and Freddie Mac cease purchasing or guaranteeing high LTV mortgages insured by us,
our ability to conduct our business will be materially and adversely impacted.
  If the Illinois Division of Insurance decides to no longer permit Triad to write new mortgage
insurance policies, our business, financial condition and results of operations will be materially
and adversely affected.
  45




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If we continue to lose our significant customers, the loss of these customers will have a material
adverse effect on our business, financial condition and results of operations.
  
 Item 6. Exhibits
  46




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SIGNATURE
  TRIAD GUARANTY INC.Date: May 12, 2008/s/ Kenneth W. JonesKenneth W. JonesSenior Vice President and Chief Financial Officer
(Duly Authorized Officer and Principal
Financial Officer) 47




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##### Table of Contents



EXHIBIT INDEX
 Exhibit Number
    
    Description10.48
    
    Form of 2008 Executive/Key Employee Restricted Stock
Award Agreement pursuant to the 2006 Long-Term Stock
Incentive Plan; previously filed as Exhibit 10.48 to
the Companys Current Report on Form 8-K filed on
March 4, 2008, and incorporated herein by reference.*10.50
    
    Employment Agreement, dated March 28, 2008, between
the Company and Kenneth C. Foster; previously filed
as Exhibit 10.50 to the Companys Annual Report on
Form 10-K for the year ended December 31, 2007, filed
April 1, 2008, and incorporated herein by reference.*10.51
    
    Summary of 2008 Executive Retention Program.*10.52
    
    Summary of 2008 Executive Severance Program.*10.53
    
    Employment Agreement, dated April 23, 2008, between
the Registrant and Mark K. Tonnesen.*31.1
    
    Certification of Chief Executive Officer pursuant to
Exchange Act Rule 13a-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to
Exchange Act Rule 13a-14(a), as adopted pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certifications of Chief Executive Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.32.2
    
    Certifications of Chief Financial Officer pursuant to
18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
 
 *
    
    Management contract or compensatory plan or arrangement. 48