UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                              ---------------------

                                    FORM 10-Q


[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities  Exchange
    Act of 1934 For the quarterly period ended June 30, 2004

                                       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
                       WINSTON-SALEM, NORTH CAROLINA 27104
                    (Address of principal executive offices)

                                 (336) 723-1282
              (Registrant's telephone number, including area code)
                         ------------------------------

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

Indicate  by check mark  whether  the  registrant  is an  accelerated  filer (as
described in Exchange Act Rule 12b-2) Yes /X/ No / /

Number of shares of Common  Stock,  $.01 par value,  outstanding  as of July 15,
2004: 14,546,669 shares.

================================================================================
<PAGE>


                               TRIAD GUARANTY INC.

                                      INDEX

                                                                           Page
                                                                         Number
Part I. Financial Information:

    Item 1. Financial Statements:

         Consolidated Balance Sheets as of June 30, 2004 (Unaudited)
             and December 31, 2003.........................................   1

         Consolidated Statements of Income for the Three and Six Months
             Ended June 30, 2004 and 2003 (Unaudited)......................   2

         Consolidated Statements of Cash Flows for the Six Months
             Ended June 30, 2004 and 2003 (Unaudited)......................   3

         Notes to Consolidated Financial Statements........................   4

    Item 2. Management's Discussion and Analysis of Financial Condition
             and Results of Operations.....................................   8

    Item 3. Quantitative and Qualitative Disclosures about Market Risk.....  28

    Item 4. Controls and Procedures........................................  28

Part II. Other Information:

    Item 1. Legal Proceedings..............................................  29

    Item 2. Changes in Securities and Use of Proceeds......................  29

    Item 3. Defaults Upon Senior Securities................................  29

    Item 4. Submission of Matters to a Vote of Security Holders............  29

    Item 5. Other Information..............................................  29

    Item 6. Exhibits and Reports on Form 8-K...............................  29

      Signature............................................................  30

<PAGE>

PART I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS

                   TRIAD GUARANTY INC.
               CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                   June 30            December 31
(Dollars in thousands except per share information)                  2004                2003
                                                                 -----------           ---------
Assets                                                           (Unaudited)
<S>                                                                <C>                  <C>
Invested assets:
    Fixed maturities, available-for-sale, at fair value            $409,053             $375,097
    Equity securities, available-for-sale, at fair value             11,865               12,771
    Short-term investments                                           11,323               25,659
                                                                   --------             --------
                                                                    432,241              413,527

Cash                                                                  5,951                  973
Real estate                                                             145                  146
Accrued investment income                                             5,195                4,575
Deferred policy acquisition costs                                    31,553               29,363
Prepaid federal income taxes                                        107,208               98,124
Property and equipment                                                9,796                9,369
Reinsurance recoverable                                               1,431                  881
Other assets                                                         14,594               18,621
                                                                   --------             --------
Total assets                                                       $608,114             $575,579
                                                                   ========             ========

Liabilities and stockholders' equity
Liabilities:
    Losses and loss adjustment expenses                           $  30,766            $  27,186
    Unearned premiums                                                14,231               15,629
    Amounts payable to reinsurer                                      4,113                3,243
    Current taxes payable                                             1,058                    6
    Deferred income taxes                                           121,083              115,459
    Unearned ceding commission                                          431                  669
    Long-term debt                                                   34,490               34,486
    Accrued interest on debt                                          1,275                1,275
    Accrued expenses and other liabilities                            6,412                7,696
                                                                   --------             --------
Total liabilities                                                   213,859             205,649
Commitments and contingent liabilities - Note 4
Stockholders'equity:
    Preferred stock, par value $.01 per share --- authorized
      1,000,000 shares; no shares issued and outstanding                ---                  ---
    Common stock, par value $.01 per share --- authorized
      32,000,000 shares; issued and outstanding 14,545,669 shares
      at June 30, 2004 and 14,438,637 shares at December 31, 2003       145                  144
    Additional paid-in capital                                       91,773               87,513
    Accumulated other comprehensive income, net of income tax
      liability of $2,074 at June 30, 2004 and $6,025 at
      December 31, 2003                                               3,851               11,190
    Deferred compensation                                            (2,145)              (1,128)
    Retained earnings                                               300,631              272,211
                                                                   --------             --------
Total stockholders' equity                                          394,255              369,930
                                                                   --------             --------
Total liabilities and stockholders' equity                         $608,114             $575,579
                                                                   ========             ========
</TABLE>

                             See accompanying notes.

                                       1
<PAGE>
                               TRIAD GUARANTY INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                           Three Months Ended              Six Months Ended
                                                                June 30                         June 30
                                                       ---------------------------    ---------------------------
                                                           2004             2003           2004            2003
                                                           ----             ----           ----            ----
(Dollars in thousands except per share information)
Revenue:
<S>                                                    <C>             <C>             <C>             <C>
Premiums written:
   Direct                                              $   43,029       $   37,878     $   83,345      $   71,904
   Ceded                                                   (8,752)          (6,497)       (16,722)        (12,384)
                                                       -----------     -----------     -----------     -----------
Net premiums written                                       34,277           31,381         66,623          59,520
Change in unearned premiums                                   (94)          (3,115)         1,372          (3,123)
                                                       -----------     -----------     -----------     -----------
Earned premiums                                            34,183           28,266         67,995          56,397

Net investment income                                       4,598            4,333          9,184           8,666
Net realized investment gains (losses)                        (19)             546            558             765
Other income                                                    2                4              5              17
                                                       -----------     -----------     -----------     -----------
                                                           38,764           33,149         77,742          65,845

Losses and expenses:
Net losses and loss adjustment expenses
                                                            7,701            5,380         16,584          10,645
Interest expense on debt                                      693              693          1,386           1,386
Amortization of deferred policy acquisition costs           3,450            4,024          6,635           7,442
Other operating expenses (net of acquisition
   costs deferred)                                          6,729            5,169         13,069          11,009
                                                       -----------     -----------     -----------     -----------
                                                           18,573           15,266         37,674          30,482
                                                       -----------     -----------     -----------     -----------
Income before income taxes                                 20,191           17,883         40,068          35,363
Income taxes:
   Current                                                    594              182          1,152             353
   Deferred                                                 5,222            5,070         10,497          10,027
                                                       -----------     -----------     -----------     -----------
                                                            5,816            5,252         11,649          10,380
                                                       -----------     -----------     -----------     -----------
Net income                                             $   14,375      $    12,631     $   28,419      $   24,983
                                                       ==========      ===========     ==========      ==========
Earnings per common and common equivalent
   share:
   Basic                                               $      .99      $       .88     $     1.96      $     1.75
                                                       ==========      ===========     ==========      ==========
   Diluted                                             $      .98      $       .87     $     1.93      $     1.73
                                                       ==========      ===========     ==========      ==========
Shares used in computing earnings per common
   and common equivalent share:
   Basic                                               14,502,215       14,278,727     14,480,514      14,250,145
                                                       ==========      ===========     ==========      ==========
   Diluted                                             14,718,499       14,451,403     14,694,996      14,425,274
                                                       ==========      ===========     ==========      ==========
</TABLE>
                             See accompanying notes.

                                       2
<PAGE>
                               TRIAD GUARANTY INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                           Six Months Ended
                                                                               June 30
                                                                     --------------------------
(Dollars in thousands)                                                  2004             2003
                                                                        ----             ----
Operating activities
<S>                                                                  <C>              <C>
Net income                                                           $  28,419        $  24,983
Adjustments to reconcile net income to net cash provided
  by operating activities:
    Loss, loss adjustment expenses and unearned premium reserves         2,182            6,181
    Accrued expenses and other liabilities                              (2,349)          (2,740)
    Current taxes payable                                                1,052              443
    Amounts due to/from reinsurer                                          320           (1,540)
    Accrued investment income                                             (620)            (728)
    Policy acquisition costs deferred                                   (8,825)          (8,684)
    Amortization of deferred policy acquisition costs                    6,635            7,442
    Net realized investment gains                                         (558)            (765)
    Provision for depreciation                                           1,601            1,402
    Accretion of discount on investments                                  (442)          (2,098)
    Deferred income taxes                                               10,497           10,027
    Prepaid federal income taxes                                        (9,084)          (9,937)
    Unearned ceding commission                                            (238)            (358)
    Real estate acquired in claim settlement                                 1            1,147
    Other assets                                                         4,027           (2,042)
    Other operating activities                                             580              328
                                                                     ---------        ---------
Net cash provided by operating activities                               33,198           23,061

Investing activities
Securities available-for-sale:
  Purchases - fixed maturities                                         (92,965)         (60,359)
  Sales - fixed maturities                                              50,214           34,238
  Purchases - equities                                                    (286)            (547)
  Sales - equities                                                         762              736
Net change in short-term investments                                    14,336            8,101
Purchases of property and equipment                                     (2,028)          (1,019)
                                                                     ---------        ---------
Net cash used in investing activities                                  (29,967)         (18,850)

Financing activities
Proceeds from exercise of stock options                                  1,747            1,118
                                                                     ---------        ---------
Net cash provided by financing activities                                1,747            1,118
                                                                     ---------        ---------
Net change in cash                                                       4,978            5,329
Cash at beginning of period                                                973              233
                                                                     ---------        ---------
Cash at end of period                                                $   5,951        $   5,562
                                                                     =========        =========

Supplemental schedule of cash flow information
 Cash paid during the period for:
  Income taxes and United States Mortgage Guaranty
    Tax and Loss Bonds                                                $  9,825        $  10,401
  Interest                                                               1,383            1,383
</TABLE>
                            See accompanying notes.

                                       3
<PAGE>
                               TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                  June 30, 2004
                                   (Unaudited)

NOTE 1 - THE COMPANY

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


NOTE 2 - ACCOUNTING POLICIES AND BASIS OF PRESENTATION

     BASIS OF PRESENTATION - The accompanying  unaudited  consolidated financial
statements have been prepared in accordance with accounting principles generally
accepted in the United  States 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  accounting
principles  generally  accepted  in the  United  States for  complete  financial
statements. In the opinion of management,  all adjustments (consisting of normal
recurring  accruals)  considered  necessary  for a fair  presentation  have been
included. Operating results for the three and six months ended June 30, 2004 are
not  necessarily  indicative  of the results  that may be expected  for the year
ending  December 31, 2004. 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, 2003.

     STOCK  OPTIONS - Currently,  the Company  grants stock options to employees
for a fixed number of shares with an exercise price equal to or greater than the
fair value of the shares at the date of grant.  The Company  accounts  for stock
option  grants  using  the  intrinsic  value  method  prescribed  in  Accounting
Principles Board Opinion No. 25,  Accounting for Stock Issued to Employees,  and
accordingly, recognizes no compensation expense for the stock option grants.


                                       4
<PAGE>


     For  purposes of pro forma  disclosures,  the  estimated  fair value of the
options  is  amortized  to  expense  over  the  options'  vesting  period.   Had
compensation  expense for stock  options  been  recognized  using the fair value
method on the grant date, net income and earnings per share on a pro forma basis
would have been (in thousands, except for earnings per share information):

                                       Three Months Ended    Six Months Ended
                                             June 30              June 30
                                       -----------------     ----------------
                                        2004     2003        2004        2003
                                        ----     ----        ----        ----

    Net income - as reported           $14,375  $12,631     $28,419    $24,983
    Net income - pro forma             $14,250  $12,461     $28,157    $24,638

    Earnings per share - as reported:
        Basic                          $  0.99  $  0.88     $  1.96    $  1.75
        Diluted                        $  0.98  $  0.87     $  1.93    $  1.73

    Earnings per share - pro forma:
        Basic                          $  0.98  $  0.87     $  1.94    $  1.73
        Diluted                        $  0.97  $  0.86     $  1.92    $  1.71


NOTE 3 - CONSOLIDATION

     The consolidated  financial  statements include Triad Guaranty Inc. and its
wholly owned subsidiary,  Triad Guaranty Insurance  Corporation  ("Triad"),  and
Triad's wholly owned  subsidiaries,  Triad Guaranty  Assurance  Corporation  and
Triad Re Insurance Corporation  (collectively referred to as "the Company"). All
significant intercompany accounts and transactions have been eliminated.


NOTE 4 -- COMMITMENTS AND CONTINGENT LIABILITIES

     REINSURANCE - Triad cedes certain  premiums and losses 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 and if deemed uncollectible.


                                       5
<PAGE>



     INSURANCE  IN  FORCE,  DIVIDEND  RESTRICTIONS,   AND  STATUTORY  RESULTS  -
Insurance regulations generally limit the writing of mortgage guaranty insurance
to an  aggregate  amount of insured  risk no greater  than 25 times the total of
statutory capital and surplus and the statutory  contingency reserve. The amount
of net risk for  insurance in force at June 30, 2004 and  December 31, 2003,  as
presented  below,  was  computed by applying the various  percentage  settlement
options  to the  insurance  in  force  amounts,  adjusted  by risk  ceded  under
reinsurance agreements and by applicable stop-loss limits, based on the original
insured amount of the loan. Triad's ratio is as follows (dollars in thousands):

                                     June 30         December 31
                                      2004              2003
                                   ----------        ----------
Net risk                           $6,796,532        $6,590,222
                                   ==========        ==========

Statutory capital and surplus      $  132,068        $  128,212
Statutory contingency reserve         335,043           302,740
                                   ----------        ----------
   Total                           $  467,111        $  430,952
                                   ==========        ==========

Risk-to-capital ratio               14.6-to-1         15.3-to-1
                                   ==========        ==========

     Triad  and  its  wholly  owned   subsidiaries,   Triad  Guaranty  Assurance
Corporation  and Triad Re Insurance  Corporation,  are each required under their
respective  domiciliary  states'  insurance  code to maintain a minimum level of
statutory capital and surplus. Triad, an Illinois domiciled insurer, is required
under the Illinois  Insurance  Code (the "Code") to maintain  minimum  statutory
capital and surplus of $5 million.  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 statutory surplus as regards policyholders, or (b)
statutory net income for the calendar year preceding the date of the dividend.

     Net income as determined in accordance with statutory  accounting practices
was $37.5  million and $33.2  million for the six months ended June 30, 2004 and
2003, respectively, and $69.8 million for the year ended December 31, 2003.

     At June 30, 2004 and December 31, 2003,  the amount of Triad's  equity that
could be paid out in  dividends  to  stockholders  was $48.4  million  and $44.5
million,  respectively,  which was the earned  surplus  of Triad on a  statutory
basis on those dates.

     LOSS  RESERVES - The Company  establishes  loss reserves to provide for the
estimated  costs of  settling  claims  with  respect to loans  reported to be in
default  and loans in  default  which  have not been  reported  to the  Company.
Reserves are established by management  using estimated claim rates  (frequency)
and claim amounts  (severity) to estimate ultimate losses. The reserving process
gives effect to current economic  conditions and profiles  delinquencies by such
factors as policy year, geography, chronic late payment characteristics and age.
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.


                                       6
<PAGE>



         Litigation - Two lawsuits have been filed against the Company in the
ordinary course of the Company's business alleging violations of the Real Estate
Settlement Procedures Act and the Fair Credit Reporting Act. In the opinion of
management, the ultimate resolution of these pending litigation matters will not
have a material adverse effect on the financial position or results of
operations of the Company.


NOTE 5 - EARNINGS PER SHARE

     Basic and  diluted  earnings  per  share are based on the  weighted-average
daily  number of  shares  outstanding.  For  diluted  earnings  per  share,  the
denominator   includes   the   dilutive   effect   of  stock   options   on  the
weighted-average  shares  outstanding.  There  are no  other  reconciling  items
between the  denominators  used in basic earnings per share and diluted earnings
per share.  The numerator used in basic earnings per share and diluted  earnings
per share is the same for all periods presented.


NOTE 6 - COMPREHENSIVE INCOME

     Comprehensive income consists of net income and other comprehensive income.
For the Company,  other comprehensive  income is composed of unrealized gains or
losses on available-for-sale securities, net of income tax. For the three months
ended  June 30,  2004 and 2003,  the  Company's  comprehensive  income  was $5.4
million and $17.2 million,  respectively. For the six months ended June 30, 2004
and  2003,  comprehensive  income  totaled  $21.1  million  and  $30.6  million,
respectively.


NOTE 7 - INCOME TAXES

     Income tax  expense  differs  from the amounts  computed  by  applying  the
Federal statutory income tax rate to income before income taxes primarily due to
tax-exempt  interest  that the Company earns from its  investments  in municipal
bonds.


                                       7
<PAGE>

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


     Management's  Discussion and Analysis of Financial Condition and Results of
Operations analyzes the consolidated  financial condition,  changes in financial
position,  and results of  operations  for the three month and six month periods
ended  June 30,  2004 and 2003,  of Triad  Guaranty  Inc.  and its  consolidated
subsidiaries,  collectively the Company. The discussion supplements Management's
Discussion  and  Analysis in Form 10-K for the year ended  December 31, 2003 and
should be read in conjunction  with the interim  financial  statements and notes
contained therein.

     Certain  of the  statements  contained  herein,  other than  statements  of
historical  fact,  are  forward-looking  statements.  These  statements are made
pursuant to the safe harbor  provisions  of the  Private  Securities  Litigation
Reform Act of 1995 and include  estimates and  assumptions  related to economic,
competitive, and legislative developments.  These forward-looking statements are
subject to change and  uncertainty,  which are,  in many  instances,  beyond our
control and have been made based upon our  expectations  and beliefs  concerning
future  developments and their potential effect on us. There can be no assurance
that future developments will be in accordance with our expectations or that the
effect of future  developments  on the Company will be those  anticipated by us.
Actual results could differ  materially from those expected by us,  depending on
the outcome of certain  factors,  including the possibility of general  economic
and business  conditions  that are different  than  anticipated,  legislative or
regulatory  developments,  changes  in  interest  rates  or the  stock  markets,
stronger than anticipated competitive activity, and the factors described in the
forward-looking statements.

UPDATE ON CRITICAL ACCOUNTING ESTIMATES

     Our Form 10-K  describes the  accounting  policies that are critical to the
understanding  of our results of operations  and our financial  position.  These
critical accounting policies relate to the assumptions and judgments utilized in
establishing the reserve for losses and loss adjustment expenses, determining if
declines  in  fair  values  of  investments  are  other  than   temporary,   and
establishing  appropriate  initial  amortization  schedules for deferred  policy
acquisition costs ("DAC") and subsequent adjustments to that amortization.

     We believe  that these  continue  to be the  critical  accounting  policies
applicable  to the Company and that these  policies were applied in a consistent
manner during the first six months of 2004.

OVERVIEW

     Through our subsidiaries,  we provide mortgage guaranty  insurance coverage
to  residential  mortgage  lenders  and  investors  in the  United  States  as a
credit-enhancement  vehicle,  typically when individual borrowers have less than
20% equity in the property.  Mortgage  guaranty  insurance also  facilitates the
sale of individual  low down payment loans in the secondary  market and provides


                                       8
<PAGE>



protection  to  lenders  who choose to keep the loans.  Business  originated  by
lenders  and  submitted  to us on an  individual  basis is  referred  to as flow
business.  Premiums on flow business can be either lender paid or borrower paid,
although the majority is borrower  paid. We also provide  mortgage  insurance to
lenders and investors who seek additional  default  protection,  capital relief,
and credit-enhancement on groups of loans that are sold in the secondary market.
This business is referred to as structured bulk business.

     We derive our  revenues  principally  from a) initial  and  renewal  earned
premiums from flow business (net of  reinsurance  premiums  ceded as part of our
risk  management  strategies),  b) initial  and  renewal  earned  premiums  from
structured bulk  transactions,  and c) investment  income on invested assets. We
also realize  investment  gains,  net of investment  losses,  periodically  as a
source of revenue when the opportunity presents itself within the context of our
overall investment strategy.

     Our expenses  essentially  consist of a) amounts  ultimately paid on claims
submitted,  b) increases in reserves for  estimated  future claim  payments,  c)
general  and  administrative  costs of  acquiring  new  business  and  servicing
existing policies, d) other general business expenses, and (e) income taxes.

     Our profitability depends largely on a) the adequacy of our product pricing
and  underwriting  discipline  relative  to the risks  insured,  b)  persistency
levels,  c)  operating  efficiencies,  and d) the  level  of  investment  yield,
including  realized  gains and losses,  on our investment  portfolio.  We define
persistency as the percentage of insurance in force remaining from twelve months
prior.

     For a more detailed  description of our industry and  operations,  refer to
the "Business" section of our Form 10-K.


                                       9
<PAGE>



CONSOLIDATED RESULTS OF OPERATIONS

     Following  is a summary of our results for the three  months and six months
ended June 30, 2004 and 2003 (in thousands except per share  information)  along
with a column indicating a favorable or unfavorable change from 2003:

<TABLE>
<CAPTION>
                                           Three Months Ended                       Six Months Ended
                                   ------------------------------------    ------------------------------------
                                     June 30    June 30     Favorable/       June 30    June 30    Favorable/
                                       2004       2003     (Unfavorable)       2004       2003    (Unfavorable)
                                     -------    -------    -------------     -------    -------   -------------
<S>                                  <C>        <C>            <C>           <C>        <C>            <C>
Earned premiums                      $34,183    $28,266        20.9%         $67,995    $56,397        20.6%
Net investment income                  4,598      4,333         6.1            9,184      8,666         6.0
Net realized investment
    (losses)/gains                       (19)       546      (103.5)             558        765       (27.1)
Other income                               2          4       (50.0)               5         17       (70.6)
                                     -------    -------                      -------    -------
    Total revenues                    38,764     33,149        16.9           77,742     65,845        18.1

Net losses and loss adjustment
    expenses                           7,701      5,380       (43.1)          16,584     10,645       (55.8)
Interest expense on debt                 693        693         -              1,386      1,386         -
Amortization of deferred policy
    acquisition costs                  3,450      4,024        14.3            6,635      7,442        10.8
Other operating expenses (net of
    acquisition costs deferred)
                                       6,729      5,169       (30.2)          13,069     11,009       (18.7)
                                     -------    -------                      -------    -------
Income before income taxes            20,191     17,883        12.9           40,068     35,363        13.3
Income taxes                           5,816      5,252       (10.7)          11,649     10,380       (12.2)
                                     -------    -------                      -------    -------
Net income                           $14,375    $12,631        13.8%         $28,419    $24,983        13.8%
                                     =======    =======                      =======    =======
Diluted earnings per share           $  0.98    $  0.87        12.6%         $  1.93    $  1.73        11.6%
                                     =======    =======                      =======    =======
</TABLE>

     Our  results for the three  months and six months  ended June 30, 2004 were
positively  impacted  by  improvements  in  persistency  levels.  The  quarterly
persistency  run rate for the second quarter of 2004 was 56.9% compared to 33.6%
for the second  quarter of 2003.  Increased  persistency  affects our net income
primarily  in two ways:  a) renewal  earned  premiums  increase  and b) expenses
decrease because of reduced amortization of DAC.

     Losses  and  loss  adjustment  expenses  for  the  second  quarter  of 2004
increased  43% over the second  quarter of 2003 and 56% when  comparing  the six
months  ended June 30, 2004 to the same period of 2003.  Our  insurance in force
has grown 46% over the past two years, and this,  coupled with the low levels of
persistency  for  that  period,  has  resulted  in a book  of  business  that is
relatively  unseasoned.  Experience has shown that the highest claims  incidence
generally occurs three to six years after the policy is written.  As our book of
business ages, we expect a continued  increase in both delinquencies and claims.
Further,  because  a  higher  proportion  of our  insurance  in  force is in the
refinance  segment,  anticipated  losses could  develop  sooner than  originally
anticipated.


                                       10
<PAGE>



     We discuss our results in greater  detail in the  discussions  that follow.
The  information  is presented  in three  categories:  Production  and In Force,
Revenues, and Losses and Expenses.

THREE MONTHS ENDED JUNE 30, 2004 COMPARED TO THREE MONTHS ENDED JUNE 30, 2003

     Net income  increased  13.8% for the second quarter of 2004 over the second
quarter of 2003 driven by a 20.9%  increase in earned  premiums  combined with a
14.3%  decrease  in the  amortization  of DAC.  The  second  quarter of 2004 had
essentially  no diluted  earnings per share impact from net realized  investment
gains or losses after taxes,  compared to a $0.02 per share contribution for the
second  quarter  of 2003.  Diluted  realized  gains  and  losses  per share is a
non-GAAP  measure.  We  believe  this is  relevant  and  useful  information  to
investors  because,  except for write-downs on  other-than-temporarily  impaired
securities,  it shows the effect that our discretionary sales of investments had
on earnings.

PRODUCTION AND IN FORCE

     Total  insurance  written in the second quarter of 2004 decreased  10.2% to
$4.4  billion  from $4.9  billion for the same period of 2003.  Total  insurance
written  includes  insurance  written from flow  production and structured  bulk
transactions.

     Flow insurance  written for the second  quarter of 2004 decreased  38.3% to
$2.9  billion  from $4.7  billion  in the second  quarter  of 2003.  Refinancing
activity  was very strong  during the second  quarter of 2003 as interest  rates
generally declined during that quarter while interest rates generally  increased
during the second quarter of 2004.  Loan  originations  for the entire  industry
declined  because  of this  change  in  interest  rates.  The  Mortgage  Bankers
Association  estimates that 2004 mortgage loan production will be  approximately
35% less than the 2003  production.  Additionally,  the  continued  expansion of
other alternative credit enhancements such as 80/10/10 structures (a combination
of an 80% first mortgage loan, a 10% second  mortgage loan usually issued by the
same  lender,  and a 10%  down  payment)  has  limited  the  mortgage  insurance
industry's overall penetration into the mortgage marketplace.

     Insurance  written in the second quarter of 2004 attributable to structured
bulk transactions increased to $1.5 billion from $0.2 billion in the same period
of 2003.  Insurance written attributed to structured bulk transactions is likely
to vary  significantly  from period to period,  as opposed to insurance  written
from flow originations,  due to: a) the limited number of transactions (but with
larger size)  occurring  in this  market;  b)  competition  from other  mortgage
insurers;  c)  the  relative  attractiveness  in  the  marketplace  of  mortgage
insurance  versus other forms of credit  enhancement;  and d) the changing  loan
composition and underwriting criteria of the market.


                                       11
<PAGE>



     The following table provides  estimates of our national market share of net
new primary  insurance written based on preliminary  information  available from
the industry association and other public sources:

                                             Three Months Ended
                                                   June 30
                                            --------------------
                                             2004          2003
                                            ------        -----
     Flow business                            4.8%         5.4%
     Structured bulk transactions            11.8%         2.7%
        Total                                 5.8%         4.7%

     The decrease in our market share of flow business in the second  quarter of
2004  compared  to the  second  quarter  of 2003 was the  result of a decline in
production of a product driven by the refinance  segment.  As explained earlier,
refinancing  activity was very strong in the second  quarter of 2003 as compared
to the second quarter of 2004. The increase in our structured bulk  transactions
market  share  shown  above is the  result of our  increased  efforts to further
penetrate this market. Insurance written under structured bulk business may vary
widely between  periods due to variations in the  availability  of  transactions
that  meet  our  required  returns  and in the  level  of  competition  for this
business.

     Periodically  we enter into structured  bulk  transactions  involving loans
that have insurance  effective dates within the current reporting period but for
which detailed loan  information  regarding the insured loans is not provided by
the issuer of the transaction until later. When this situation occurs, we accrue
premiums  that are due but not yet paid  based  upon  the  estimated  commitment
amount of the  transaction  in the reporting  period with respect to each loan's
insurance  effective  date.  However,  the policies are not  reflected in our in
force,  insurance written,  or related industry data totals until the loan level
detail  is  reported  to  us.  At  June  30,  2004,  there  were  no  structured
transactions with effective dates within the second quarter for which loan level
detail had not been  received.  At June 30,  2003,  there  were $1.0  billion of
structured  transactions  for which the loan level detail had not been received.
Premium  written and premium  earned for the second  quarter of 2003 include the
respective amounts due and earned related to this insurance, while these amounts
were reported as new  production  and insurance in force in the third quarter of
2003.

     Total direct  insurance in force  reached  $34.8  billion at June 30, 2004,
compared to $31.7  billion at December 31, 2003,  and $26.9  billion at June 30,
2003 as we continue  to gain  overall  market  share and as  persistency  levels
improve.


                                       12
<PAGE>



     The following table shows our persistency trends since June 30, 2003:

                                       Annual        Quarterly Persistency
                                    Persistency             Run Rate
                                   -------------     ---------------------
               June 30, 2004            59.9%                 56.9%
              March 31, 2004            54.6%                 68.5%
           December 31, 2003            50.7%                 46.3%
          September 30, 2003            49.0%                 19.3%
               June 30, 2003            54.6%                 33.6%

     As mentioned  earlier,  the primary  driver of our  increasing  persistency
rates  has  been the  general  rise in  mortgage  interest  rates  that led to a
corresponding decline in refinancing activity.  Refinancings accounted for 32.3%
of flow insurance written during the second quarter of 2004 compared to 55.1% in
the second quarter of 2003. The slight dip in the quarterly persistency run rate
in the second  quarter of 2004  reflects a drop in  interest  rates in March and
April that affected persistency rates in the second quarter.

     The  credit  quality  of our  existing  insurance  in force  portfolio  has
remained  relatively  consistent  despite a 29.4% growth in direct  insurance in
force from June 30, 2003 to June 30, 2004. As shown below, the credit quality of
our bulk  business at June 30, 2004 has  improved  over June 30, 2003 as we have
focused our efforts on structured  transactions consisting of Alt-A loans. Fair,
Isaac and Co., Inc.  ("FICO") credit scores are one of the major factors used in
determining  credit risk in an existing book of business.  The  following  table
presents the FICO credit score  distribution  of our risk in force for both flow
and bulk business at June 30, 2004 and 2003.

                                             Flow                 Bulk
                                       ---------------      ---------------
                                        2004      2003       2004     2003
                                        ----      ----       ----     ----
     Credit score less than 575         0.8%      0.8%       2.3%      3.8%
     Credit score between 575 and 619   4.7%      4.6%       5.2%     12.5%
     Credit score greater than 619      94.5%    94.6%      92.5%     83.7%

     As the table shows, we insure some loans that have FICO credit scores below
575. We believe that these loans have a higher  probability  of loss than a loan
with a FICO  credit  score of 575 or greater.  We do not expect  loans with FICO
scores less than 575 to become a significant portion of our insurance in force.

     We enter into bulk  transactions that  predominantly  insure loans that are
classified  as Alt-A,  which we have defined as having high credit  quality,  an
average  loan-to-value  ("LTV")  of 75%,  and that have been  underwritten  with
reduced or no  documentation.  Additionally,  approximately 95% of our insurance
written  attributable to bulk transactions during the second quarter of 2004 was
structured with deductibles putting us in the second loss position.


                                       13
<PAGE>



REVENUES

     Total direct  premiums  written  increased  13.6% to $43.0  million for the
second quarter of 2004 from $37.9 million for the second  quarter of 2003.  This
increase  was  primarily  due to an $8.8  million  increase  in  renewal  direct
premiums  partially  offset by a $3.7 million  decline in initial  premiums.  As
mentioned earlier, increased persistency is the main contributor to the increase
in renewal  premiums  while a decline  in  refinancings  caused  the  decline in
initial premiums.

     As further  described in our Form 10-K, we cede a portion of premiums under
risk-sharing  arrangements  with our  lender  partners  (referred  to as captive
reinsurance  arrangements) as well as under excess of loss reinsurance treaties.
The primary  difference between direct premiums written and net premiums written
is ceded premium.  Net premiums written  increased 9.2% to $34.3 million for the
second quarter of 2004 from $31.4 million for the second quarter of 2003.  Ceded
premiums written  increased 34.7% to $8.8 million for the second quarter of 2004
over $6.5 million for the second quarter of 2003 primarily due to an increase in
the  amount of our  premium  subject to captive  reinsurance  arrangements.  Our
premium  cede rate  (the  ratio of ceded  premiums  written  to direct  premiums
written) was 20.3% for the second quarter of 2004 compared to 17.2% for the same
period of 2003.  During the  second  quarter  of 2004,  54.0% of flow  insurance
written and 36.1% of total insurance written was subject to captive  reinsurance
arrangements  compared  to 43.3% of flow  insurance  written  and 41.6% of total
insurance  written in the same period of 2003. The increase in the percentage of
flow insurance written subject to captive reinsurance  arrangements from 2003 to
2004 is primarily a result of decreased  production in our lender-paid  mortgage
insurance  program  that  is  generally  not  subject  to  captive   reinsurance
arrangements. Additionally, none of our structured bulk transactions are subject
to captive  reinsurance  arrangements.  We  anticipate  that ceded  premium will
continue to increase in  connection  with an increase in our  insurance in force
subject to captive reinsurance arrangements.

     The primary  difference between net premiums written and earned premiums is
the change in the  unearned  premium  reserve.  Our unearned  premium  liability
remained  flat from  March  31,  2004 to June 30,  2004.  Our  unearned  premium
liability  increased  $3.1  million  from March 31, 2003 to June 30, 2003 due to
growth in sales of products  with  premiums  paid on an annual basis during that
period.

     Net  investment  income for the second  quarter of 2004 increased 6.1% over
the second quarter of 2003 despite a 16.9% increase in average  invested  assets
over the same  periods  due to a  significant  decline in  investment  portfolio
yields.

     Net  realized   investment   gains/(losses),   except  for  write-downs  on
other-than-temporarily  impaired securities, are the result of our discretionary
transactions to sell investment  securities  based on the context of our overall
portfolio management strategies and are likely to vary significantly from period
to   period.   The   second   quarter   of   2004   included    write-downs   on
other-than-temporarily  impaired  securities  of $39  thousand  compared to $175
thousand in the second  quarter of 2003.  See further  discussion  of impairment
write-downs in the Realized Gains, Losses and Impairments section below.

                                       14
<PAGE>



LOSSES AND EXPENSES.

     The increase in losses and loss adjustment  expenses for the second quarter
of 2004 over the  second  quarter of 2003 was due to the growth in the number of
delinquencies  and is reflective of overall growth of our insurance in force and
the  seasoning  of our in  force  business.  Net  paid  losses,  excluding  loss
adjustment expenses, increased to $6.7 million during the second quarter of 2004
from $3.9  million  during the second  quarter of 2003,  an  increase  of 71.8%.
Average  severity (direct paid losses divided by number of claims paid) for flow
business was  approximately  $25,600 for the second  quarter of 2004 compared to
$22,500 for the same period of 2003.

     The  following  table  provides  detail on  direct  paid  losses  from flow
business and  structured  bulk business for the three months ended June 30, 2004
and 2003 (in thousands):

                                    2004           2003
                                    ----           ----
         Flow business             $5,883         $3,692
         Bulk business                832            233
                                   ------         ------
         Total                     $6,715         $3,925
                                   ======         ======

     Our loss ratio (the ratio of incurred losses to earned premiums)  increased
to 22.5% for the second  quarter  of 2004 from  19.0% for the second  quarter of
2003. As mentioned  earlier,  the increase in the loss ratio is consistent  with
our  expectations  given the  increase  in severity of claims due to the lack of
seasoning of our in force business.  Generally,  unseasoned  mortgage loans have
only  slight  principal  amortization  in the  early  years  and the  underlying
collateral  has had only  limited  opportunity  for market  value  appreciation;
therefore, the severity of the losses paid on these loans is higher than on more
seasoned  loans.  We expect  loss  ratios to  continue  to increase as a greater
amount of our insurance in force reaches its anticipated highest claim frequency
years.  Because  of the  higher  proportion  of our  insurance  in  force in the
refinance segment, the anticipated loss curve could possibly develop sooner than
originally  anticipated.  Changes in the economic  environment  could accelerate
paid and incurred loss  development.  Due to the inherent  uncertainty of future
premium  levels,  losses,  economic  conditions,  and other  factors that affect
earnings,  it is difficult to predict with any degree of certainty the impact of
such higher claim frequencies on future earnings. Most of our bulk production in
2003 and 2004 has been  structured  with  deductibles  that put us in the second
loss  position,  which we expect to moderate  the loss  development  in the bulk
portfolio.

     The decrease in DAC  amortization  for the second  quarter of 2004 over the
second  quarter of 2003 again  reflects  the increase in  persistency  for these
periods.  A full discussion of the impact of persistency on DAC  amortization is
included in the Deferred Policy Acquisition Costs section below.


                                       15
<PAGE>



     The increase in other  operating  expenses  for the second  quarter of 2004
over the second quarter of 2003 is relatively  consistent with our growth in the
insurance in force.  The expense  ratio (ratio of the  amortization  of deferred
policy  acquisition costs and other operating  expenses to net premiums written)
for the second  quarter of 2004 remained  relatively  flat at 29.7%  compared to
29.3% for the second quarter of 2003.

     Our  effective tax rate  decreased to 28.8% for the second  quarter of 2004
from 29.4% for the second  quarter of 2003 due primarily to a higher  proportion
of  interest  income  from  tax-preferred  municipal  securities.  We expect our
effective  tax rate to range  between 28% and 29% for the  remainder of the year
depending on the relationship of tax-free  investment  income from our municipal
bond portfolio to total revenues.

SIX MONTHS ENDED JUNE 30, 2004 COMPARED TO SIX MONTHS ENDED JUNE 30, 2003

     Net income  increased 13.8% for the first six months of 2004 over the first
six months of 2003,  driven by a 20.6% increase in earned premiums combined with
a 10.8%  decrease in the  amortization  of DAC.  Net realized  investment  gains
contributed  $0.02 to earnings per share on a diluted basis in the first half of
2004 compared to $0.03 for the first half of 2003.

PRODUCTION AND IN FORCE

     Total  insurance  written in the first six months of 2004 increased 5.8% to
$9.1  billion  from $8.6  billion for the same period of 2003.  Total  insurance
written  includes  insurance  written from flow  production and structured  bulk
transactions.

     Flow insurance  written for the first six months of 2004 decreased 36.1% to
$5.3  billion  from $8.3  billion in the first six  months of 2003.  Refinancing
activity  was very  strong  during  the  first  half of 2003 as  interest  rates
generally  declined during that period and generally  increased during the first
half of 2004. Production for the entire industry declined because of this change
in interest rates.  Refinancings  accounted for 33.7% of flow insurance  written
during the first six months of 2004 compared to 56.0% in the first six months of
2003.  Insurance  written in the first six months of 2004  includes $3.8 billion
attributable  to structured  bulk  transactions  compared to $0.3 billion in the
first six months of 2003.

REVENUES

     Total direct premiums  written were $83.3 million in the first half of 2004
compared  to $71.9  million  for the same  period of 2003,  an increase of 15.9%
primarily  due to a $14.7  million  increase  in  renewal  direct  premiums.  As
mentioned  earlier,  increased  persistency  is the  main  contributor  to  this
increase in renewal premiums.

     Net premiums  written  increased  11.9% to $66.6  million for the first six
months of 2004 from  $59.5  million  for the  first  six  months of 2003.  Ceded
premiums written  increased 35.0% to $16.7 million for the first half of 2004 as

                                       16
<PAGE>



compared  to $12.4  million  for the  first  half of 2003,  primarily  due to an
increase  in  the  amount  of  our  premium   subject  to  captive   reinsurance
arrangements.  Our premium  cede rate was 20.1% for the first six months of 2004
compared  to 17.2% for the same  period of 2003.  During the first six months of
2004, 56.8% of flow insurance  written and 33.4% of total insurance  written was
subject to captive reinsurance arrangements, compared to 45.6% of flow insurance
written and 43.9% of total  insurance  written in the same  period of 2003.  The
increase  in the  percentage  of  flow  insurance  written  subject  to  captive
reinsurance  arrangements  from 2003 to 2004 is  primarily a result of continued
decreased   production  in  our  lender-paid  mortgage  insurance  program  that
generally  is not  subject  to captive  reinsurance  arrangements  as  mentioned
earlier.  Additionally,  none of our structured bulk transactions are subject to
captive reinsurance arrangements. We anticipate that ceded premium will continue
to increase in  connection  with an increase in  insurance  in force  subject to
captive reinsurance arrangements.

     The primary  difference between net premiums written and earned premiums is
the change in the  unearned  premium  reserve.  Our unearned  premium  liability
decreased  $1.4 million from  December 31, 2003 to June 30, 2004, as compared to
an increase of $3.1 million from December 31, 2002 to June 30, 2003.

     Net  investment  income for the first half of 2004  increased 6.0% over the
first half of 2003 despite a 17.2% increase in average  invested assets over the
same periods due to a significant decline in investment  portfolio yields in the
comparable interest rate environments.

     Net  realized  investment  gains for the first six months of 2004  included
write-downs on  other-than-temporarily  impaired securities of $139,000 compared
to $614,000 in the same period of 2003.  See further  discussion  of  impairment
write-downs in the Realized Gains, Losses and Impairments section below.

LOSSES AND EXPENSES

     The increase in losses and loss  adjustment  expenses for the first half of
2004 over the  first  half of 2003 was based  upon the  growth in the  number of
delinquencies  and is reflective of overall growth of our insurance in force and
the  seasoning  of our in  force  business.  Net  paid  losses,  excluding  loss
adjustment  expenses,  increased to $12.7 million during the first six months of
2004 from $7.4  million  during the first six  months of 2003,  an  increase  of
72.6%.  Average  severity for flow  business was  approximately  $26,400 for the
first six months of 2004 compared to $22,500 for the same period of 2003.


                                       17
<PAGE>



     The  following  table  provides  detail on  direct  paid  losses  from flow
business and structured bulk business for the six months ended June 30, 2004 and
2003 (in thousands):

                                    2004            2003
                                    ----            ----
           Flow business           $11,137         $7,001
           Bulk business             1,587            370
                                   -------         ------
           Total                   $12,724         $7,371
                                   =======         ======

     Our loss ratio increased to 24.4% for the first half of 2004 from 18.9% for
the first half of 2003. As mentioned earlier,  the increase in the loss ratio is
consistent with our expectations  given the overall growth of insurance in force
and the  increase in severity of claims due to the lack of  seasoning  of our in
force business.

     The decrease in DAC  amortization for the first half of 2004 over the first
half of 2003 again reflects the increase in persistency for these periods.

     The increase in other  operating  expenses for the first six months of 2004
over the first six months of 2003 is  relatively  consistent  with our growth in
the insurance in force. The expense ratio for the first half of 2004 declined to
29.6%  compared  to 31.0% for the first half of 2003 due to the  realization  of
expense efficiencies within our operations combined with the decrease in the DAC
amortization mentioned above.

     Our effective tax rate  decreased to 29.1% for the first six months of 2004
from 29.4% for the first six months of 2003 due primarily to a higher proportion
of interest income from tax-preferred municipal securities.

SIGNIFICANT CUSTOMERS

     Our objective is  controlled,  profitable  growth in both the flow and bulk
arenas  while  adhering to our risk  management  strategies.  Our strategy is to
continue  our  focus  on  national  lenders  while  maintaining  the  productive
relationships that we have built with regional lenders. Consolidation within the
mortgage origination industry has resulted in a greater percentage of production
volume  being  concentrated  among a  smaller  customer  base.  Our ten  largest
customers were  responsible  for 71% of flow  insurance  written during both the
three and six month  periods  ending June 30, 2004,  compared to 76% and 75% for
the three and six month  periods  ending June 30,  2003,  respectively.  Our two
largest  customers were responsible for 53% of flow insurance written during the
three and six month  periods  ending June 30, 2004,  compared to 61% and 59% for
the three and six month periods ending June 30, 2003, respectively.  The loss of
one or more of these  significant  customers could have an adverse effect on our
business.


                                       18
<PAGE>



FINANCIAL POSITION

     Total assets  increased 5.7% to $608 million at June 30, 2004 over December
31, 2003.  Total  liabilities  increased to $214 million at June 30, 2004,  from
$206  million at December  31,  2003.  Our  mortgage  insurance  operations  and
reserves are primarily  supported by our  investment  portfolio,  which contains
most of our assets.  This section  identifies several items on our balance sheet
other than invested  assets that are important in the overall  understanding  of
our financial  position.  These items include deferred policy acquisition costs,
prepaid federal income tax and related  deferred income taxes, and loss and loss
adjustment expense reserves.  A separate Investment Portfolio discussion follows
this section and reviews our  investment  portfolio,  key  portfolio  management
strategies, and methodologies by which we manage credit risk.

DEFERRED POLICY ACQUISITION COSTS

     In accordance with generally accepted accounting principles, costs expended
to acquire new business are  capitalized  as DAC and  recognized as expense over
the anticipated life of the policy. We employ models that calculate amortization
of DAC separately  for each book year.  The models rely on  assumptions  that we
make based upon  historical  industry  experience and our own unique  experience
regarding the annual persistency development of each book year.

     Persistency is the most important  assumption  utilized in determining  the
timing of reported  amortization  expense  reflected in the income statement and
the  carrying  value  of DAC on the  balance  sheet.  A  change  in the  assumed
persistency  can impact the current and future  amortization  expense as well as
the carrying  value on the balance  sheet.  However,  our models are dynamic and
adjust when actual book year persistency is lower than the assumptions  employed
in the models. When this happens,  the DAC amortization is accelerated through a
dynamic  adjustment in order to match the amortization  expense with the life of
the policies on which the acquisition costs were originally deferred.


                                       19
<PAGE>



     The following table shows the DAC asset for the three months and six months
ended June 30, 2004 and 2003 and the effect of persistency on  amortization  (in
thousands):

                                         Three Months Ended    Six Months Ended
                                              June 30              June 30
                                         ------------------   ------------------
                                           2004     2003        2004      2003
                                           ----     ----        ----      ----
   Balance - beginning of period         $30,863  $30,050     $29,363   $28,997
   Costs capitalized                       4,140    4,213       8,825     8,684

   Amortization - normal                  (3,029)  (3,101)     (6,126)   (6,223)
   Amortization - dynamic adjustment
                                            (421)    (923)       (509)   (1,219)
                                         ----------------     -----------------
      Total amortization                  (3,450)  (4,024)     (6,635)   (7,442)
                                         ----------------     -----------------
   Balance - end of period               $31,553  $30,239     $31,553   $30,239
                                         ================     =================
   Quarterly persistency rate              56.9%    33.6%
                                         ================

PREPAID FEDERAL INCOME TAXES AND DEFERRED INCOME TAXES

     We purchase ten-year  non-interest  bearing United States Mortgage Guaranty
Tax and Loss  Bonds  ("Tax and Loss  Bonds") in lieu of paying  current  federal
income taxes to take advantage of a special  contingency  reserve  deduction for
mortgage guaranty companies.  See our Form 10-K for a more complete  description
of these  transactions.  During the six months ended June 30, 2004,  $655,000 of
Tax and Loss Bonds matured, and we purchased an additional $9.7 million of these
bonds.


LOSS AND LOSS ADJUSTMENT EXPENSE RESERVE

     We establish  reserves using  estimated  claim rates  (frequency) and claim
amounts   (severity)  to  estimate   ultimate  losses.   Our  reserving  process
incorporates numerous factors in a formula that gives effect to current economic
conditions and profiles delinquencies by such factors as policy year, geography,
chronic  late payment  characteristics,  and the number of months the policy has
been in default.  Because the  estimate  for loss  reserves is  sensitive to the
estimates of claims frequency and severity,  we perform sensitivity  analyses to
test the  reasonableness  of the best  estimate  generated  by the loss  reserve
process.  Changes to reserve estimates are reflected in the financial statements
in the periods in which the adjustments are determined.

     Our loss and loss adjustment expense reserves increased to $30.8 million at
June 30, 2004,  compared to $27.2 million at December 31, 2003 and $24.4 million
at June 30, 2003.


                                       20
<PAGE>



     Loss and loss  adjustment  expense  reserves  are  established  on  insured
mortgage loans when any notices of default are received,  no matter what the age
of the default.  Reserves also are established for estimated  losses incurred on
notices of default  not yet  reported by the lender.  Consistent  with  industry
practices,  we do not establish loss reserves for future claims on insured loans
that are not currently in default.  Approximately  72% of our insurance in force
was written  within the last two years.  Experience  indicates  that years three
through six have the highest incidence of claims. The increase in reserves shown
above is indicative of the increase in the number of loans in default as more of
our insurance in force approaches the years with the highest incidence of claims
and an expected growth in the severity of claims. As mentioned earlier,  because
of the  higher  proportion  of our  in  force  in  the  refinance  segment,  the
anticipated   loss  curve  could  possibly   develop   sooner  than   originally
anticipated.  We expect this trend to continue as our  insurance  in force grows
and continues to season.

     The following table shows default statistics as of June 30, 2004,  December
31, 2003, and June 30, 2003:

                                                   Default Statistics
                                            --------------------------------
                                             June 30    December 31  June 30
                                              2004         2003       2003
                                            --------     --------    -------
       Number of insured loans in force      254,510     236,234     205,046
       Number of loans in default              4,765       4,242       3,351
       Percentage of loans in default
         (default rate)                        1.87%       1.80%       1.63%
       Number of insured loans in force
          excluding bulk loans               208,384     205,033     189,161

       Number of loans in default
          excluding bulk loans                 3,319       3,053       2,510
       Percentage of loans in default
          excluding bulk loans                 1.59%       1.49%       1.33%
       Number of bulk loans in force          46,126      31,201      15,885
       Number of bulk loans in default         1,446       1,189         841
       Percentage of bulk loans in default     3.13%       3.81%       5.29%


     The  number  of loans in  default  reported  above  includes  all  reported
delinquencies  that are in excess of two  payments  in arrears at the  reporting
date and all  reported  delinquencies  that  were  previously  in  excess of two
payments  in arrears  and have not been  brought  current.  The  increase in the
default rate for the flow business is attributable  primarily to the maturing of
the flow  portfolio  for  reasons  consistent  with  the  increase  in  reserves
explained above.  The default  occurrences for both flow business and structured
bulk business are consistent with management's expectation.


                                       21
<PAGE>



INVESTMENT PORTFOLIO

PORTFOLIO DESCRIPTION

     We manage our investment  portfolio to meet or exceed regulatory and rating
agency  requirements.  We invest for the long term, and most of our  investments
are held until they mature.  Our investment  portfolio  includes primarily fixed
income  securities,  and the  majority  of these  are  tax-preferred  state  and
municipal bonds. We have established a formal  investment  policy that describes
our overall quality and  diversification  objectives and limits.  Our investment
policies  and  strategies  are  subject  to change  depending  upon  regulatory,
economic, and market conditions,  as well as our anticipated financial condition
and operating requirements,  including our tax position. While we invest for the
long-term and most of our  investments  are held until they mature,  we classify
our entire  investment  portfolio as  available  for sale.  This  classification
allows  us the  flexibility  to  dispose  of  securities  in  order  to meet our
investment strategies and operating requirements. All investments are carried on
our balance  sheet at fair value.  The following  schedule  shows the growth and
diversification of our investment portfolio (in thousands).

                                         June 30, 2004        December 31, 2003
                                      ------------------     -------------------
                                       Amount    Percent      Amount     Percent
                                      --------   -------     --------    -------
   Fixed maturity securities:
     U. S. government obligations     $ 13,802     3.2%      $ 15,623      3.8%
     Mortgage-backed bonds                  88     0.0             99      0.0
     State and municipal bonds         369,786    85.6        330,228     79.9
     Corporate bonds                    25,377     5.9         29,147      7.0
                                      --------   ------      --------    ------
        Total fixed maturities         409,053    94.7        375,097     90.7
   Equity securities                    11,865     2.7         12,771      3.1
                                      --------   ------      --------    ------
        Total available-for-sale
            securities                 420,918    97.4        387,868     93.8
   Short-term investments               11,323     2.6         25,659      6.2
                                      --------   ------      --------    ------
                                      $432,241   100.0%      $413,527    100.0%
                                      ========   ======      ========    ======

     We seek to provide  liquidity  in our  investment  portfolio  through  cash
equivalent  investments and through  diversification  and investment in publicly
traded  securities.  We attempt to maintain a level of liquidity and duration in
our investment  portfolio  consistent with our business outlook and the expected
timing,  direction,  and degree of changes in interest  rates.  The  duration to
maturity of the fixed maturity portfolio was 10.7 years at June 30, 2004 with an
effective  maturity  of 8.5 years  compared  to a duration of 11.4 years with an
effective maturity of 6.4 years at December 31, 2003. Another way that we manage
risk and liquidity is to limit our exposure on individual securities. As of June
30, 2004 and December 31, 2003, no  investment  in the  securities of any single
issuer exceeded 2% of our investment portfolio.


                                       22
<PAGE>



     The growth in net investment  income has moderated  recently in spite of an
increase in our overall investment portfolio.  The drop in the effective pre-tax
yield reflects the decrease in new money rates available for investment  coupled
with our  strategies to increase the overall credit quality of the portfolio and
increase our investment in state and municipal bonds.

CREDIT RISK

     Credit  risk is inherent in an  investment  portfolio.  We manage this risk
through a structured  approach to internal  investment  quality  guidelines  and
diversification  while assessing the effects of the changing economic landscape.
One way we attempt to limit the  inherent  credit  risk in the  portfolio  is to
maintain  investments with high ratings. The following table describes our fixed
maturity holdings by credit ratings (in thousands):

                                         June 30, 2004        December 31, 2003
                                      ------------------     -------------------
                                       Amount    Percent      Amount     Percent
                                      --------   -------     --------    -------
    U.S. treasury and agency bonds   $  13,890     3.4%     $  15,722       4.2%
    AAA                                284,691    69.6        256,291      68.3
    AA                                  47,302    11.6         50,428      13.4
    A                                   44,164    10.8         35,937       9.6
    BBB                                  9,816     2.4         10,347       2.8
    BB                                     235     0.0          2,204       0.7
    B                                    1,174     0.3          1,669       0.4
    CCC and lower                          473     0.1            525       0.1
    Not rated                            7,308     1.8          1,974       0.5
                                      --------   ------      --------    ------
         Total fixed maturities       $409,053   100.0%      $375,097     100.0%
                                      ========   ======      ========    ======

     Further,   we  regularly  review  our  investment   portfolio  to  identify
securities  that  may  have  suffered  impairments  in  value  that  will not be
recovered,  termed potentially distressed securities. In identifying potentially
distressed securities, we first screen for all securities that have a fair value
to cost or amortized cost ratio of less than 80%. Additionally,  as part of this
identification process, we utilize the following information:

     o    Length of time the fair value was below amortized cost
     o    Industry factors or conditions related to a geographic area negatively
          affecting the security
     o    Downgrades by a rating agency
     o    Past  due  interest  or  principal  payments  or  other  violation  of
          covenants
     o    Deterioration  of the  overall  financial  condition  of the  specific
          issuer

     In   analyzing   our   potentially    distressed    securities   list   for
other-than-temporary  impairments,  we pay special  attention to securities that
have been on the list for a period  greater  than six  months.  Our  ability and
intent to retain the  investment  for a sufficient  time to recover its value is
also  considered.  We assume that,  absent reliable  contradictory  evidence,  a
security that is  potentially  distressed  for a continuous  period greater than
nine  months has  incurred an  other-than-temporary  impairment.  Such  reliable


                                       23
<PAGE>



contradictory  evidence  might  include,  among  other  factors,  a  liquidation
analysis performed by our investment advisors or outside consultants,  improving
financial   performance  of  the  issuer,  or  valuation  of  underlying  assets
specifically pledged to support the credit.

     Should we conclude that the decline is other than  temporary,  the security
is written down to fair value through a charge to realized  investment gains and
losses.  We adjust  the  amortized  cost for  securities  that have  experienced
other-than-temporary  impairments  to  reflect  fair  value  at the  time of the
impairment. We consider factors that lead to an other-than-temporary  impairment
of a particular  security in order to determine  whether these  conditions  have
impacted other similar securities.

UNREALIZED GAINS AND LOSSES

     The following table  summarizes by category our unrealized gains and losses
in our securities portfolio at June 30, 2004:

                                   Cost or     Gross         Gross
                                  Amortized  Unrealized   Unrealized    Fair
                                     Cost      Gains        Losses      Value
                                  ---------  ----------   ----------    -----
Fixed maturity securities:
   Corporate                      $ 22,774     $ 2,671      $    68   $ 25,377
   U.S. Government                  14,027          98          323     13,802
   Mortgage-backed                      80           8            -         88
   State and municipal             367,795       5,605        3,614    369,786
                                  --------     -------      -------   --------
      Subtotal, debt securities    404,676       8,382        4,005    409,053
Equity securities                   10,317       1,759          211     11,865
                                  --------     -------      -------   --------
       Total securities           $414,993     $10,141      $ 4,216   $420,918
                                  ========     =======      =======   ========

     These unrealized gains and losses do not necessarily represent future gains
or  losses  that  we will  realize.  Changing  conditions  related  to  specific
securities,  overall market interest  rates,  or credit spreads,  as well as our
decisions  concerning  the  timing of a sale,  may impact  values we  ultimately
realize.  We monitor  unrealized  losses through further  analysis  according to
maturity date,  credit quality,  individual  creditor exposure and the length of
time  the  individual  security  has  continuously  been in an  unrealized  loss
position.  The  preponderance of the gross unrealized  losses on debt securities
shown above  related to bonds with a maturity  date in excess of ten years.  The
largest  individual  unrealized  loss on any one  security  at June 30, 2004 was
$185,000 on a bond with an amortized cost of $1.9 million.

     Of the $4.2 million gross  unrealized  losses at June 30, 2004,  none had a
fair value to cost or amortized cost ratio of less than 80%.

     Information  about  unrealized  gains and  losses is  subject  to  changing
conditions.  Securities with unrealized gains and losses will fluctuate, as will
those securities that we have identified as potentially  distressed.  The recent


                                       24
<PAGE>



volatility of financial  markets has led to an increase in both unrealized gains
and losses. Our current evaluation of other-than-temporary  impairments reflects
our  intent  to  hold  certain  securities  until  maturity.   However,  we  may
subsequently decide to sell certain of these securities in future periods within
the  overall  context of our  portfolio  management  strategies.  If we make the
decision to dispose of a security  with an  unrealized  loss, we will write down
the  security  to its  fair  value  if we  have  not  sold  it by the end of the
reporting period.

REALIZED GAINS, LOSSES AND IMPAIRMENTS

     During the second  quarter and first six months of 2004,  we wrote down one
security in the amounts of $39,000 and $139,000, respectively. These write-downs
were on a $250,000 par value  preferred  stock in an  international  airline for
which the value had fluctuated  below 80% of amortized cost for over a year. The
additional  write-down in the second quarter on this security  resulted from our
assessment that the security was other than  temporarily  impaired  because of a
further reduction in credit quality by rating agencies. However, this particular
security is not currently in default. We hold no other securities in the airline
industry.

LIQUIDITY AND CAPITAL RESOURCES

     Our sources of operating  funds consist  primarily of premiums  written and
investment  income.  Operating cash flow is applied  primarily to the payment of
claims, interest,  expenses, and prepaid federal income taxes in the form of Tax
and Loss Bonds.

     We generated positive cash flow from operating  activities of $33.2 million
in the first six months of 2004 compared to $23.1 million for the same period of
2003. The increase in cash flow from operating activities reflects the growth in
premiums  and  investment  income  in excess of  increases  in claims  and other
operating  expenses  paid. Our business does not routinely  require  significant
capital  expenditures  other than for  enhancements to our computer  systems and
technological  capabilities.  Positive  cash flows are invested  pending  future
payments of claims and expenses.  Cash flow shortfalls,  if any, could be funded
through  sales  of  short-term   investments  and  other  investment   portfolio
securities.

     The insurance laws of the State of Illinois impose certain  restrictions on
dividends  that  an  insurance  subsidiary  can pay the  parent  company.  These
restrictions, based on statutory accounting practices, include requirements that
dividends  may be paid only out of statutory  earned  surplus and that limit the
amount of  dividends  that may be paid  without  prior  approval of the Illinois
Insurance  Department.  There  have  been no  dividends  paid  by the  insurance
subsidiaries to the parent company.

     We cede business to captive  reinsurance  subsidiaries of certain  mortgage
lenders  ("Captives"),  primarily under excess of loss  reinsurance  agreements.
Generally, reinsurance recoverables on loss reserves and unearned premiums ceded
to these Captives are backed by trust funds or letters of credit.

     Total  stockholders'  equity  increased to $394.3  million at June 30, 2004
from $369.9 million at December 31, 2003. This increase resulted  primarily from


                                       25
<PAGE>



net income for the first six months of 2004 of $28.4  million and an increase in
additional  paid-in-capital  of $4.3  million  resulting  from the  exercise  of
employee stock options and the related tax benefit. This was partially offset by
a  decrease  in  net  unrealized   gains  on  invested   assets   classified  as
available-for-sale of $7.3 million (net of income tax).

     Total  statutory  policyholders'  surplus  for our  insurance  subsidiaries
increased to $132.1 million at June 30, 2004 from $128.2 million at December 31,
2003. The primary difference between statutory policyholders' surplus and equity
computed  under  generally  accepted  accounting  principles  is  the  statutory
contingency reserve. The balance in the statutory contingency reserve was $335.0
million at June 30,  2004,  compared  to $302.7  million at December  31,  2003.
Statutory  capital,  for the  purpose  of  computing  the total risk in force to
statutory  capital,  includes both  policyholders'  surplus and the  contingency
reserve. Statutory capital amounted to $467.1 million at June 30, 2004, compared
to $430.9 million at December 31, 2003.

     Triad's  ability  to write  insurance  depends  on the  maintenance  of its
financial  strength  ratings and the adequacy of its capital in relation to risk
in force. A significant  reduction of capital or a significant  increase in risk
may impair Triad's  ability to write  additional  insurance.  A number of states
also generally limit Triad's  risk-to-capital  ratio to 25-to-1.  As of June 30,
2004,  Triad's  risk-to-capital  ratio was 14.6-to-1 as compared to 15.3-to-1 at
December 31,  2003,  and  11.0-to-1  for the industry as a whole at December 31,
2002,  the  latest  industry  data  available.   The  risk-to-capital  ratio  is
calculated  using net risk in force,  which takes into  account risk ceded under
reinsurance  arrangements,  including captive risk-sharing  arrangements and any
applicable  stop-loss  limits,  as the numerator,  and statutory  capital as the
denominator.

     There  have been no  changes  in our  financial  ratings  or outlook by the
rating  agencies since December 31, 2003 as detailed in our Form 10-K.  Triad is
rated "AA" by both  Standard & Poor's  Ratings  Services  and Fitch  Ratings and
"Aa3" by Moody's  Investors  Service.  A reduction in Triad's  rating or outlook
could adversely affect our operations.

     There  have  been  legislative  and  regulatory  proposals  to  change  the
oversight  of both  Fannie  Mae and  Freddie  Mac.  Significant  changes  in the
regulation  of  these  entities  could  impact  Triad  and the  entire  mortgage
industry.

OFF BALANCE SHEET ARRANGEMENTS AND AGGREGATE CONTRACTUAL OBLIGATIONS

     We  lease  office  facilities,  automobiles,  and  office  equipment  under
operating  leases  with  minimum  lease  commitments  that range from one to ten
years.  We have no  capitalized  leases or material  purchase  commitments.  Our
long-term debt has a single  maturity date of 2028.  There have been no material
changes to the aggregate contractual obligations shown in our Form 10-K.


                                       26
<PAGE>



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:

     o    interest rates may increase or decrease from their current levels;
     o    housing prices may increase or decrease from their current levels;
     o    housing  transactions  requiring  mortgage  insurance may decrease for
          many reasons including changes in interest rates,  economic conditions
          or alternative credit enhancement products;
     o    our market  share may  change as a result of  changes in  underwriting
          criteria or competitive products or rates;
     o    the amount of insurance written could be adversely 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 (Government Sponsored Enterprises);
     o    our financial condition and competitive  position could be affected by
          legislation or regulation  impacting the mortgage guaranty industry or
          the Government Sponsored Enterprises,  specifically, and the financial
          services industry in general;
     o    rating agencies may revise methodologies for determining our financial
          strength  ratings and may revise or withdraw the  assigned  ratings at
          any time;
     o    decreases in persistency,  which are affected by loan  refinancings in
          periods of low interest rates, may have an adverse effect on earnings;
     o    the amount of  insurance  written and the growth in insurance in force
          or risk in force as well as our performance may be adversely  impacted
          by the  competitive  environment  in the  private  mortgage  insurance
          industry,  including the type, structure,  and pricing of our products
          and services and our competitors;
     o    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;
     o    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 may have an adverse  effect on our
          earnings;
     o    our  performance  may be impacted by changes in the performance of the
          financial markets and general economic conditions;
     o    economic  downturns  in  regions  where our risk is more  concentrated
          could have a particularly  adverse  effect on our financial  condition
          and loss development;
     o    Revisions in risk-based capital rules by the Office of Federal Housing
          Enterprise  Oversight  for Fannie Mae and Freddie  Mac could  severely
          limit  our  ability  to  compete   against  various  types  of  credit
          protection  counterparties,  including  "AAA" rated  private  mortgage
          insurers;


                                       27
<PAGE>



     o    changes in the  eligibility  guidelines  of Fannie Mae or Freddie  Mac
          could have an adverse effect on the Company;
     o    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 earnings.

     Accordingly,  actual  results  may  differ  from  those  set  forth  in the
forward-looking statements. Attention also is directed to other risk factors set
forth  in  documents  filed by the  Company  with the  Securities  and  Exchange
Commission.

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's  market risk  exposures at June 30, 2004 have not  materially
changed from those identified in Form 10-K for the year ended December 31, 2003.


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.  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   identified  in  connection  with  the
          evaluation  described in the above  paragraph that occurred during the
          second quarter 2004 that have materially  affected,  or are reasonably
          likely to materially  affect,  our internal  controls  over  financial
          reporting.


                                       28
<PAGE>



Part II.  OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS - None

ITEM 2.  CHANGES IN SECURITIES AND USE OF PROCEEDS - None

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES - None

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

          The Annual Meeting of  Stockholders  was held on May 20, 2004.  Shares
     entitled  to  vote  at the  Annual  Meeting  totaled  14,476,623  of  which
     14,138,751 shares were represented.

          The  following  seven  directors  were elected at the Annual  Meeting.
     Shares voted for and authorized withheld for each nominee were as follows:

          Name of Nominee         Number of Votes for   Authorization withheld
          ---------------         -------------------   ----------------------
          Glenn T. Austin, Jr.         14,094,648             44,103
          Robert T. David              13,992,918            145,833
          William T. Ratliff, III      13,943,743            195,008
          Michael A. F. Roberts        14,094,548             44,203
          Richard S. Swanson           13,978,877            159,874
          Darryl W. Thompson           13,943,643            195,108
          David W. Whitehurst          10,784,899          3,353,852


ITEM 5.  OTHER INFORMATION - None

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits

          See  exhibit index on page 31.

     (b)  Reports on Form 8-K since December 31, 2003

          January  30,  2004  -  Triad  Guaranty  Inc.  issued  a  news  release
          announcing its financial results for the fourth quarter and the fiscal
          year ended December 31, 2003.

          April 27, 2004 - Triad Guaranty Inc. issued a news release  announcing
          its financial results for the first quarter of 2004.

          July 29, 2004 - Triad Guaranty Inc.  issued a news release  announcing
          its financial results for the second quarter of 2004.



                                       29
<PAGE>



                                    SIGNATURE

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



                                         TRIAD GUARANTY INC.

Date: August 9, 2004

                                         /s/ Kenneth S. Dwyer
                                         -----------------------
                                         Kenneth S. Dwyer
                                         Vice President and Chief
                                            Accounting Officer










                                       30
<PAGE>



                                  EXHIBIT INDEX


   Exhibit Number                      Description
   --------------   ------------------------------------------------------------
      31(i)         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(ii)        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            Certifications   of  Chief   Executive   Officer  and  Chief
                    Financial  Officer  pursuant to 18 U.S.C.  Section  1350, as
                    adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
                    2002.