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 March 31, 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 April 15,
2004: 14,476,873 shares.


<PAGE>

                               TRIAD GUARANTY INC.

                                      INDEX
                                                                          Page
                                                                         Number
Part I. Financial Information:

   Item 1. Financial Statements:

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

   Consolidated Statements of Income for the Three Months
      Ended March 31, 2004 and 2003 (Unaudited)............................   2

   Consolidated Statements of Cash Flows for the Three Months
      Ended March 31, 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............................................   7

   Item 3. Quantitative and Qualitative Disclosures about Market Risk......  22

   Item 4. Controls and Procedures.........................................  22

Part II. Other Information:

   Item 1. Legal Proceedings...............................................  22

   Item 2. Changes in Securities and Use of Proceeds.......................  22

   Item 3. Defaults Upon Senior Securities.................................  22

   Item 4. Submission of Matters to a Vote of Security Holders.............  22

   Item 5. Other Information...............................................  22

   Item 6. Exhibits and Reports on Form 8-K................................  23

   Signature...............................................................  23


<PAGE>
                               TRIAD GUARANTY INC.
                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
                                                                                March 31       December 31
(Dollars in thousands except per share information)                               2004            2003
                                                                              -----------      ----------
                                                                              (Unaudited)
Assets
<S>                                                                             <C>              <C>
Invested assets:
    Fixed maturities, available-for-sale, at fair value                         $403,568         $375,097
    Equity securities, available-for-sale, at fair value                          12,477           12,771
    Short-term investments                                                        12,863           25,659
                                                                                --------         --------
                                                                                 428,908          413,527

Cash                                                                               4,736              973
Real estate                                                                          145              146
Accrued investment income                                                          4,848            4,575
Deferred policy acquisition costs                                                 30,863           29,363
Prepaid federal income taxes                                                      98,124           98,124
Property and equipment                                                             9,883            9,369
Reinsurance recoverable                                                            1,551              881
Other assets                                                                      16,508           18,621
                                                                                --------         --------
Total assets                                                                    $595,566         $575,579
                                                                                ========         ========
Liabilities and stockholders' equity
Liabilities:
    Losses and loss adjustment expenses                                         $ 29,945        $  27,186
    Unearned premiums                                                             14,158           15,629
    Amounts payable to reinsurer                                                   3,474            3,243
    Current taxes payable                                                            578                6
    Deferred income taxes                                                        121,480          115,459
    Unearned ceding commission                                                       549              669
    Long-term debt                                                                34,488           34,486
    Accrued interest on debt                                                         584            1,275
    Accrued expenses and other liabilities                                         4,051            7,696
                                                                                --------         --------
Total liabilities                                                                209,307          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 14,476,623 shares
      at March 31, 2004 and 14,438,637 shares at December 31, 2003                   145              144
    Additional paid-in capital                                                    89,313           87,513
    Accumulated other comprehensive income, net of income tax
      liability of $6,898 at March 31, 2004 and $6,025 at
      December 31, 2003                                                           12,810           11,190
    Deferred compensation                                                         (2,265)          (1,128)
    Retained earnings                                                            286,256          272,211
                                                                                --------         --------
Total stockholders' equity                                                       386,259          369,930
                                                                                --------         --------
Total liabilities and stockholders' equity                                      $595,566         $575,579
                                                                                ========         ========
</TABLE>
                             See accompanying notes.

                                       1
<PAGE>
                               TRIAD GUARANTY INC.
                        CONSOLIDATED STATEMENTS OF INCOME
                                   (Unaudited)
<TABLE>
<CAPTION>

                                                                     Three Months Ended
                                                                           March 31
                                                                  -------------------------
                                                                     2004            2003
                                                                     ----            ----
                                                                 (Dollars in thousands except
                                                                    per share information)
Revenue:
  Premiums written:
<S>                                                               <C>            <C>
     Direct                                                       $   40,316     $   34,026
     Assumed                                                               1              1
     Ceded                                                            (7,971)        (5,887)
                                                                  ----------      ---------
  Net premiums written                                                32,346         28,140
  Change in unearned premiums                                          1,466             (8)
                                                                  ----------      ---------
  Earned premiums                                                     33,812         28,132
  Net investment income                                                4,586          4,333
  Net realized investment gains                                          577            219
  Other income                                                             3             12
                                                                  ----------      ---------
                                                                      38,978         32,696

  Net losses and loss adjustment expenses                              8,883          5,265
  Interest expense on debt                                               693            693
  Amortization of deferred policy acquisition costs                    3,185          3,418
  Other operating expenses (net of acquisition
     costs deferred)                                                   6,340          5,841
                                                                  ----------      ---------
                                                                      19,101         15,217
                                                                  ----------      ---------
  Income before income taxes                                          19,877         17,479
  Income taxes:
     Current                                                             558            171
     Deferred                                                          5,275          4,956
                                                                  ----------      ---------
                                                                       5,833          5,127
                                                                  ----------      ---------
  Net income                                                      $   14,044     $   12,352
                                                                  ==========     ==========
  Earnings per common and common equivalent
     share:
      Basic                                                       $      .97     $      .87
                                                                  ==========     ==========
      Diluted                                                     $      .96     $      .86
                                                                  ==========     ==========
  Shares used in computing earnings per
     common and common equivalent share:
     Basic                                                        14,458,667      14,221,218
                                                                  ==========      ==========
     Diluted                                                      14,671,346      14,398,800
                                                                  ==========      ==========
</TABLE>

                             See accompanying notes.

                                       2
<PAGE>

                               TRIAD GUARANTY INC.
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Unaudited)
<TABLE>
<CAPTION>
                                                                                Three Months Ended
                                                                                      March 31
                                                                             -------------------------
(Dollars in thousands)                                                          2004             2003
                                                                                ----             ----
Operating activities
<S>                                                                          <C>            <C>
Net income                                                                   $  14,044      $  12,352
Adjustments to reconcile net income to net cash provided by operating
  activities:
    Loss, loss adjustment expenses and unearned premium reserves                 1,288          1,734
    Accrued expenses and other liabilities                                      (3,302)        (3,288)
    Current taxes payable                                                          572            321
    Amounts due to/from reinsurer                                                 (439)        (1,507)
    Accrued investment income                                                     (273)          (821)
    Policy acquisition costs deferred                                           (4,685)        (4,471)
    Amortization of deferred policy acquisition costs                            3,185          3,418
    Net realized investment gains                                                 (577)          (219)
    Provision for depreciation                                                     790            695
    Accretion of discount on investments                                          (303)        (1,103)
    Deferred income taxes                                                        5,274          4,956
    Prepaid federal income taxes                                                     -           (936)
    Unearned ceding commission                                                    (120)          (180)
    Real estate acquired in claim settlement                                         1            502
    Accrued interest on debt                                                      (691)          (691)
    Other assets                                                                 2,113           (135)
    Other operating activities                                                     252            146
                                                                             ---------      ---------
Net cash provided by operating activities                                       17,129         10,773

Investing activities
Securities available-for-sale:
  Purchases - fixed maturities                                                 (44,661)       (37,375)
  Sales - fixed maturities                                                      19,241         19,142
  Purchases - equities                                                            (114)          (120)
  Sales - equities                                                                 390            210
Net change in short-term investments                                            12,796          8,089
Purchases of property and equipment                                             (1,304)          (394)
                                                                             ---------      ---------
Net cash used in investing activities                                          (13,652)       (10,448)

Financing activities
Proceeds from exercise of stock options                                            286            779
                                                                             ---------      ---------
Net cash provided by financing activities                                          286            779
                                                                             ---------      ---------
Net change in cash                                                               3,763          1,104
Cash at beginning of period                                                        973            233
                                                                             ---------      ---------
Cash at end of period                                                        $   4,736      $   1,337
                                                                             =========      =========

Supplemental schedule of cash flow information
Cash paid during the period for:
  Income taxes and United States Mortgage Guaranty Tax and Loss Bonds        $       -      $   1,017
  Interest                                                                       1,383          1,383
</TABLE>

                             See accompanying notes.

                                       3
<PAGE>
                               TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 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  ("Triad"),
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  months ended March 31, 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 Form10-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.

     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
                                                     March 31
                                            ---------------------------
                                               2004              2003
                                               ----              ----
Net income - as reported                     $ 14,044          $ 12,352
Net income - pro forma                       $ 13,907          $ 12,170

Earnings per share - as reported:
    Basic                                    $  0.97           $  0.87
    Diluted                                  $  0.96           $  0.86

Earnings per share - pro forma:
    Basic                                    $  0.96           $  0.86
    Diluted                                  $  0.95           $  0.85

                                       4
<PAGE>
                              TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2004
                                   (Unaudited)

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

     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 March 31, 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, to the insurance in
force amounts based on the original insured amount of the loan. Triad's ratio is
as follows (dollars in thousands):

                                               March 31,       December 31,
                                                 2004             2003
                                             -----------      -----------
     Net risk                                $ 6,734,121      $ 6,590,222
                                             ===========      ===========
     Statutory capital and surplus           $   125,392      $   128,212
     Statutory contingency reserve               318,880          302,740
                                             -----------      -----------
        Total                                $   444,272      $   430,952
                                             ===========      ===========
     Risk-to-capital ratio                     15.2-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.

                                       5
<PAGE>
                              TRIAD GUARANTY INC.
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                 March 31, 2004
                                   (Unaudited)

     Net income as determined in accordance with statutory  accounting practices
was $18.6  million and $16.5  million for the three  months ended March 31, 2004
and 2003, respectively, and $69.8 million for the year ended December 31, 2003.

     At March 31, 2004 and December 31, 2003,  the amount of Triad's equity that
could be paid out in  dividends  to  stockholders  was $41.7  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.

     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  March 31, 2004 and 2003,  the  Company's  comprehensive  income was $15.7
million and $13.4 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.

                                       6
<PAGE>
ITEM 2.       MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS

     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 months ended March 31, 2004
and  2003  of  Triad  Guaranty  Inc.  and  its  consolidated  subsidiaries.  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, in determining
if declines in fair values of investments are other than temporary  investments,
and  in  establishing   appropriate  initial  amortization   schedules  for  and
periodically adjusting amortization of deferred policy acquisition costs.

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

OVERVIEW

     As  detailed  in our Form 10-K,  we  provide  mortgage  guaranty  insurance
coverage to residential  mortgage lenders and investors as a  credit-enhancement
vehicle.  None of our basic operating strategies that were described in our Form
10-K have changed in the first three months of 2004. Our profitability continues
to depend  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.

                                       7
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

CONSOLIDATED RESULTS OF OPERATIONS

     Following  is a summary of our results for the three months ended March 31,
2004 and 2003 (dollars in thousands except per share information):

                                                     2004              2003
                                                     ----              ----

     Earned premiums                                $33,812           $28,132
     Net investment income                            4,586             4,333
     Net realized investment gains                      577               219
     Other income                                         3                12
                                                    -------           -------
        Total revenues                               38,978            32,696

     Net losses and loss adjustment expenses          8,883             5,265
     Interest expense on debt                           693               693
     Amortization of deferred policy
         acquisition costs                            3,185             3,418
     Other operating expenses (net of
         acquisition costs deferred)                  6,340             5,841
                                                    -------           -------
     Income before income taxes                      19,877            17,479
     Income taxes                                     5,833             5,127
                                                    -------           -------
     Net income                                     $14,044           $12,352
                                                    =======           =======
     Diluted earnings per share                     $  0.96           $  0.86
                                                    =======           =======

     The primary  positive  driver of our results for the first  quarter of 2004
was persistency.  We define  persistency as the percentage of insurance in force
remaining  from twelve months  prior.  We saw  persistency  drop through most of
2003, reaching its low point in the third quarter. The quarterly persistency run
rate for the first  quarter of 2004 was 68.5%  compared  to 46.3% for the fourth
quarter  of 2003,  19.3% for the third  quarter  of 2003 and 50.8% for the first
quarter of 2003.  Improvements in persistency  positively  affect our net income
primarily  in two ways:  a) renewal  earned  premiums  increase  and b) expenses
decrease because of reduced amortization of deferred policy acquisition costs.

     Another important  component of our results in the first quarter of 2004 is
the loss development pattern that has emerged.  Our insurance in force has grown
58% over the past  two  years.  This  growth,  coupled  with the low  levels  of
persistency  realized  over  the past  two  years,  has  produced  a  relatively
unseasoned  book of  business.  Experience  has shown  that the  highest  claims
incidence generally occurs three to six years after the policy is written. Prior
to this period of increased claims  incidence,  estimates for these  anticipated
future  claims  would be provided  through an  increase  in reserves  based upon
delinquencies  reported to us. Our  unseasoned  book of business is reaching the
period where we expect both higher  delinquencies and claims. This fact, coupled
with the significant  growth in insurance in force,  contributed to the increase
in  losses  and loss  adjustment  expenses  in the  first  quarter  of 2004 when
compared to the same period in 2003.

                                      8
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

     Two other  important  drivers of our results have been the increase in bulk
production and our continued  commitment to risk-sharing  arrangements  with our
lender  partners.  We  address  these  drivers  and the  impact  each had in the
detailed year-by-year  comparisons that follow this discussion.  The information
is presented in three categories:  Production and In Force, Revenues, and Losses
and Expenses.

FIRST QUARTER 2004 COMPARED TO FIRST QUARTER 2003

     Net income for the first quarter of 2004  increased  13.7% to $14.0 million
from  $12.4  million  in the first  quarter  of 2003.  Net income per share on a
diluted  basis  increased  11.6% to $.96 for the first three months of 2004 from
$.86 per share in the same period of 2003.  This  improvement  in net income was
driven primarily by an increase of $5.7 million in earned premiums,  offset by a
$3.6 million increase in net losses.

PRODUCTION AND IN FORCE

     Total  insurance  written  in the first  quarter  of 2004 was $4.7  billion
compared  to $3.8  billion in the first  quarter of 2003,  an increase of 23.8%.
Total  insurance  written  includes  insurance  written from flow production and
structured bulk transactions.

     Flow  insurance  written for the first quarter of 2004  decreased  34.4% to
$2.4 billion from $3.6 billion in the first  quarter of 2003.  This decrease was
primarily  the result of the slowdown in the  refinance  market due to generally
rising rates during the first  quarter of 2004  compared to generally  declining
rates during the 2003 first quarter.  This slowed the overall  production of the
entire industry.

     Insurance  written in the first quarter of 2004  attributable to structured
bulk  transactions  totaled $2.3  billion  compared to $136 million in the first
quarter of 2003. Secondary mortgage market participants who wish to use mortgage
insurance  as  a  credit   enhancement   generally   initiate   structured  bulk
transactions.  We compete against other mortgage insurers as well as other forms
of credit  enhancement  provided  by  capital  markets  for these  transactions.
Insurance   written  for  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  acceptability  of changing loan
composition and underwriting criteria in the bulk market.

     The  risk  characteristics  of the  loans in our  bulk  portfolio  have not
changed  significantly  from  December 31,  2003.  We  predominantly  enter into
transactions  insuring loans that are classified as Alt-A, which we have defined
as having high credit quality and an average  loan-to-value  ("LTV") of 75% that
have  been   underwritten   with  reduced,   streamlined  or  no  documentation.
Additionally,  over 80% of the bulk  transactions  entered into during the first
quarter of 2004 have been structured with  deductibles  putting us in the second
loss position.

     We estimate our national market share of net new primary insurance written,
which includes  insurance  written on a flow basis as well as that attributed to
structured bulk transactions, was 7.0% for the first quarter of 2004 compared to
3.9% for the first three months of 2003.  Our  national  market share of net new
primary insurance written on a flow basis was 4.7% for the first three months of

                                      9
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

2004  compared to 4.8% for the first  quarter of 2003.  We estimate  that we had
21.4% of the national market share  attributable to structured bulk transactions
for the first quarter of 2004  compared to a negligible  percentage in the first
three months of 2003.

     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 March 31, 2004, we had  approximately  $392 million
of structured  transactions  with  effective  dates within the first quarter for
which loan level detail had not been received and,  therefore,  are not included
in our own data or  industry  totals.  These  amounts  will be  reported  as new
production  and  insurance in force totals when the issuer  provides  loan level
detail to us. We have properly  included in premium  written and premium  earned
the  respective  amounts due and earned during the first quarter of 2004 related
to this insurance.  There were no bulk  transactions at March 31, 2003 for which
loan level detail was not provided by the issuer.

     Total direct  insurance in force  reached  $33.9  billion at March 31, 2004
compared to $31.7  billion at December  31, 2003 and $26.0  billion at March 31,
2003.

     Annual  persistency  was  54.6%  at March  31,  2004  compared  to 50.7% at
December 31, 2003 and 59.1% at March 31, 2003.  The  quarterly  persistency  run
rate for the first  quarter of 2004 was 68.5%  compared  to 46.3% for the fourth
quarter  of 2003,  19.3% for the third  quarter  of 2003 and 50.8% for the first
quarter of 2003. The major driver of the increasing  persistency  rates over the
two most recent  quarters has been the general rise in mortgage  interest  rates
which led to a corresponding  decline in refinance  activity.  Triad's refinance
activity for the first three months of 2004 was 35.4% of flow insurance  written
compared to 42.1% in the fourth  quarter of 2003 and 57.2% in the first  quarter
of 2003.

     The quality of our  existing  insurance  in force  portfolio  has  remained
relatively  consistent in spite of a 25% growth in insurance in force from March
31, 2003 to March 31, 2004. 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
insurance in force for both flow and bulk at March 31, 2004 and 2003.

                                              Flow                  Bulk
                                              ----                  ----
                                         2004     2003         2004      2003
                                         ----     ----         ----      ----

    Credit score less than 575             0.8%    0.7%         3.0%      3.4%
    Credit score between 575 and 619       4.2%    4.3%         6.2%     11.4%
    Credit score greater than 619         95.0%   95.0%        90.8%     85.2%


     As the table shows,  we insure very few 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.

                                       10
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

REVENUES

     Total direct premiums written were $40.3 million for the first three months
of 2004, an increase of 18.5% compared to $34.0 million for the first quarter of
2003.  Contributing  to the  increase in direct  premiums  written for the first
quarter  of  2004  were   significant   writings   related  to  structured  bulk
transactions.  For the first quarter of 2004,  earned  premium  relating to bulk
transactions  amounted  to $6.9  million or 20.1% of the total.  Earned  premium
related  to bulk  transactions  amounted  to $3.5  million or 12.3% of the total
during the first quarter of 2003.

     Net premiums written increased 14.9% to $32.3 million for the first quarter
of 2004  compared to $28.1  million for the first  quarter of 2003.  The primary
difference  between direct  premiums  written and net premiums  written is ceded
premium.  Ceded  premium  is  comprised  of  premiums  paid  on  excess  of loss
reinsurance  treaties  as well as  risk-sharing  arrangements  with  our  lender
partners  (referred  to  as  captive  reinsurance  arrangements).  Driven  by an
increase in the amount of premium subject to captive  reinsurance  arrangements,
ceded premiums written increased 35.4% to $8.0 million in the 2004 first quarter
from $5.9 million in the first three months of 2003.  Our premium cede rate (the
ratio of ceded premiums  written to direct  premiums  written) was 19.8% for the
first quarter of 2004 compared to 17.3% for the same period in 2003. Our premium
cede rate for  captive  reinsurance  arrangements  (the ratio of ceded  premiums
written under captive reinsurance arrangements to total direct premiums written)
was 17.6%  during the first  three  months of 2004  compared  to 14.5% for 2003.
During the first quarter of 2004,  approximately 60.3% of flow insurance written
(30.8% of total insurance  written including  structured bulk  transactions) was
subject to captive  reinsurance  arrangements  compared to 48% of flow insurance
written (47%  including  structured  bulk  transactions),  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 a
decline in production from our lender-paid  mortgage  insurance  program that is
not  subject to captive  programs.  Additionally,  none of our  structured  bulk
transactions are subject to captive reinsurance arrangements. We anticipate that
ceded premiums will continue to increase as a result of the expected increase in
insurance in force subject to captive reinsurance arrangements.

     We  continue  to see the success of our  strategic  initiatives  to provide
captive  risk-sharing  alternatives  to  selected  lender  partners.  We  remain
committed   to  the   concept  of   captive   reinsurance   arrangements   on  a
lender-by-lender  basis. We will continue to be an active  participant  with our
lender partners in structures  utilizing  alternative  attachment  points,  risk
bands,  cede rates,  and ceding  commissions.  Several of our  competitors  have
announced  that they will  discontinue or limit the amount of deep ceded captive
arrangements.  Where  prudent,  we plan to  continue to  participate  in captive
risk-sharing   arrangements,   including   deep   ceded   arrangements,   on   a
lender-by-lender  basis.  It is uncertain at this time what impact,  if any, the
competitors'  decisions,  as described  above,  will have on our  production  of
insurance subject to captive reinsurance arrangements.

     Earned premiums increased 20.2% to $33.8 million for the first three months
of 2004 from $28.1 million for the same period in 2003. The  difference  between
net  written  premiums  and  earned  premiums  for  the  quarter  is  due to the
significant  writings of our bulk premium product primarily prepaid on an annual
basis and the related  increase in the unearned  premium  reserve.  Our unearned
premium liability increased to $14.2 million at March 31, 2004 from $8.6 million
at March 31, 2003.

                                       11
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

     Net investment  income for the first three months of 2004 was $4.6 million,
a 5.8% increase over $4.3 million in the first quarter of 2003. Average invested
assets grew by $69 million to $421  million for the three months ended March 31,
2004,  an increase of 19.6% from an average of $352  million for the first three
months of 2003.  The increase in average  invested  assets was  attributable  to
funds derived from normal  operating cash flow.  The percentage  increase in net
investment income was much lower than the percentage increase in invested assets
primarily due to a decrease in investment yields.

     We reported  $577,000 of net  realized  investment  gains  during the first
quarter of 2004  compared to $219,000 of net  realized  investment  gains in the
same period of 2003. Included in net realized gains were impairment  write-downs
totaling  $100,000  in the first  quarter of 2004  versus  $439,000 in the first
quarter  of  2003  as  discussed  further  in the  Realized  Gains,  Losses  and
Impairments section below.

LOSSES AND EXPENSES

     Net  incurred  losses  and loss  adjustment  expenses  (net of  reinsurance
recoveries) increased by 68.7% in the first three months of 2004 to $8.9 million
from $5.3 million in the first quarter of 2003.  The increase in losses and loss
adjustment   expenses  of  our  relatively   unseasoned  book  of  business  was
anticipated  based  upon  the  growth  in the  number  of  delinquencies  and is
reflective of our overall growth of both flow and bulk  insurance in force.  Net
paid  losses,  excluding  loss  adjustment  expenses,  increased to $6.0 million
during the first quarter of 2004 from $3.4 million during the first three months
of 2003, an increase of 74.5%. The increase in net paid losses  approximates the
increase in incurred losses and was within our expected range.  Average severity
(direct paid losses divided by number of claims paid) was approximately  $27,400
during the first  quarter of 2004  compared  to $22,700  for the same  period in
2003. The increase in severity over the past year is due to a higher  proportion
of claims being concentrated in insurance written in recent policy years. Claims
arising from recent policy years have not fully  benefited  from the  mitigating
effects of extended real estate  appreciation  and amortization of the principal
balance.  The following table provides detail on net paid losses  excluding loss
adjustment  expenses  from  flow  business  and  structured  bulk  business  (in
thousands of dollars).

                                            Three Months Ended March 31
                                            ---------------------------
                                                2004            2003
                                                ----            ----
                  Flow business                $5,254          $3,309
                  Bulk business                   755             137
                                               ------          ------
                  Total                        $6,009          $3,446
                                               ======          ======

     Our loss ratio (the ratio of incurred losses to earned  premiums) was 26.3%
for the first three months of 2004 compared to 18.7% for the 2003 first quarter.
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 reserves due to the lack of seasoning of our in force  business.  We
expect  the  first  quarter  2004  loss  ratio of 26.3% to trend  upward  as the
unseasoned book continues to fully develop.

     Due to the high  refinancing in the past two years,  our insurance in force
is relatively  unseasoned.  We believe,  based upon our  experience and industry

                                       12
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

data, that claims incidence for flow business is generally  highest in the third
through  sixth  years  after loan  origination.  We  believe  that the period of
highest claims  incidence for structured bulk  transactions is earlier than that
for flow business. We expect our incurred losses to increase as a greater amount
of our insurance in force reaches its anticipated highest claim frequency years.
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.

     Amortization of deferred policy acquisition costs decreased by 6.8% to $3.2
million during the first quarter of 2004 from $3.4 million for the first quarter
of 2003. The decrease in amortization  reflects the increased persistency in the
first  quarter  of 2004  compared  to the first  three  months  of 2003.  A full
discussion of the impact of  persistency on DAC  amortization  is included under
the subheading  `Deferred  Policy  Acquisition  Costs' under Financial  Position
later in this section.

     Other operating expenses increased 8.6% to $6.3 million for the first three
months of 2004 from $5.8 million for the same period in 2003. The modest rise in
other  operating  expenses  is  primarily  the result of  increased  general and
administrative  expenses  necessary to service the 25% increase in the insurance
in force during the same period. The expense ratio (ratio of the amortization of
deferred policy  acquisition costs and other operating  expenses to net premiums
written)  for the first  quarter of 2004 was 29.4%  compared  to 32.9% for first
three months of 2003.  The expense  ratio for the first  quarter  2004  improved
because  of  increases  in net  written  premium  at a rate  faster  than  other
operating expenses coupled with a decline in DAC amortization.

     Our  effective  tax rate was 29.3% for both the first  quarter  of 2004 and
2003.  We expect our effective tax rate to range between 28.5% and 30.0% for the
remainder  of the year  depending  on the  relationship  of tax-free  investment
income from our municipal bond portfolio to total revenues.

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 72% of flow insurance  written during the first
quarter  of 2004  compared  to 75% in the first  three  months of 2003.  Our two
largest  customers were responsible for 54% of flow insurance written during the
first three  months of 2004  compared to 56% in the first  quarter of 2003.  The
loss of one or more of these significant  customers could have an adverse effect
on our business.

                                       13
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

FINANCIAL POSITION

     Total assets  increased to $596 million at March 31, 2004  compared to $576
million at December 31, 2003, a 14% annualized  growth rate.  Total  liabilities
increased to $209  million at March 31, 2004,  from $206 million at December 31,
2003.  This  section  identifies  several  items on our  balance  sheet 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.
Our mortgage  insurance  operations and reserves are primarily  supported by our
investment portfolio,  which contains most of our assets. A separate Investments
Portfolio  section  follows  the  Financial  Position  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 deferred  policy  acquisition  costs
(DAC) and recognized as expense over the anticipated premium earning life of the
policy.  We employ dynamic 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  development will 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 better  match the timing of  amortization  expense with the life of the
policies on which the acquisition costs were originally deferred.  The following
table  shows  the DAC  asset  for the  previous  two  years  and the  effect  of
persistency on amortization (amounts in thousands):

                                                Three Months Ended March 31
                                                ---------------------------
                                                   2004            2003
                                                   ----            ----
       Balance -beginning of period             $ 29,363        $ 28,997
       Costs capitalized                           4,685           4,471
       Amortization - normal                      (3,097)         (3,122)
       Amortization - dynamic adjustment             (88)           (296)
                                                --------        --------
          Total amortization                      (3,185)         (3,418)
                                                --------        --------
       Balance - end of period                  $ 30,863        $ 30,050
                                                ========        ========
       Quarterly Persistency Rate                  68.5%           50.8%
                                                ========        ========

                                      14
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

PREPAID FEDERAL INCOME TAXES AND DEFERRED INCOME TAXES

     See  Form  10-K  for a  description  of  the  special  contingency  reserve
deduction  afforded to mortgage  insurers  and the related  Federal Tax and Loss
Bonds  permitted to be  purchased.  During the first quarter of 2004, we did not
purchase any additional Tax and Loss bonds nor did any mature.

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.  Adjustments  to  reserve  estimates  are  reflected  in the  financial
statements in the periods in which the adjustments are made.

     Our loss and loss adjustment expense reserves increased to $29.9 million at
March 31, 2004, compared to $27.2 million at December 31, 2003 and $23.1 million
at March 31, 2003.

     Loss and loss  adjustment  expense  reserves  are  established  on  insured
mortgage  loans when any notices of default  are  received  from the lender,  no
matter what the age of 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.  Over 58% 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.  With the  continued
seasoning of our insurance in force coupled with the  significant  growth of the
in-force,  we expect the actual  number of loans in default to continue to grow.
The  increase  in  reserves in the first  quarter of 2004 is  indicative  of the
increase in the number of loans in default and an expected  growth in  severity.
We expect loss reserves to continue to grow,  reflecting the growth and aging of
our insurance in force.

     The following table shows default statistics as of March 31, 2004, December
31, 2003, and March 31, 2003.

                                                  Default Statistics
                                         -------------------------------------
                                         March 31     December 31     March 31
                                           2004          2003           2003
                                           ----          ----           ----

   Number of insured loans in force      249,683        236,234       195,928
   Number of loans in default              4,722          4,242         3,009
   Percentage of loans in
      default (default rate)               1.89%          1.80%         1.54%
   Number of insured loans in force
      excluding bulk loans               207,314        205,033       178,868
   Number of loans in default
      excluding bulk loans                 3,343          3,053         2,280
   Percentage of loans in default
      excluding bulk loans                 1.61%          1.49%         1.27%
   Number of bulk loans in force          42,369         31,201        17,060
   Number of bulk loans in default         1,379          1,189           729
   Percentage of bulk loans in default     3.25%          3.81%         4.27%

                                      15
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

     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.  As mentioned earlier, we
provided  reserves  on all loans for which we have  been  notified  of  default,
regardless  of the age of the default.  The  increase in the absolute  number of
loans in default for both flow and bulk  business is  attributable  primarily to
the growth in the  amount of  insurance  in force.  The  percentage  of loans in
default for the flow business has increased due to the maturing of the portfolio
and the higher expected default rates as the portfolio seasons.  Contributing to
changes in default  rates are changes in the number of policies in force,  which
is the  denominator in the default rate  calculation.  All else being equal,  an
increase/decrease  in the policies in force  results in a  lower/higher  default
rate. As a result,  production  levels as well as persistency  have an effect on
the reported default rates.  The default  occurrences for both flow business and
structured bulk business are consistent with management's expectation.

INVESTMENT PORTFOLIO

PORTFOLIO DESCRIPTION

     Our strategy for  managing  our  investment  portfolio is to meet or exceed
regulatory and rating agency  requirements while  appropriately  managing credit
risk. 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-sheltered  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   anticipated   financial   condition  and  operating
requirements,  including  the  tax  position,  of the  Company.  Our  investment
portfolio consists entirely of  available-for-sale  securities;  therefore,  all
values are carried on our balance sheet at fair value.  The  following  schedule
shows the growth and  diversification  of our investment  portfolio  (dollars in
thousands).

                                              March 31, 2004   December 31, 2003
                                              --------------   -----------------
                                             Amount  Percent    Amount  Percent
                                             ------  -------    ------  -------
   Fixed maturity securities:
     U. S. government obligations           $ 14,642    3.5%   $ 15,623    3.8%
      Mortgage-backed bonds                       93    0.0          99    0.0
      State and municipal bonds              362,563   84.5     330,228   79.9
      Corporate bonds                         26,270    6.1      29,147    7.0
                                            --------  -----     -------  ------
     Total fixed maturities                  403,568   94.1     375,097   90.7
   Equity securities                          12,477    2.9      12,771    3.1
                                            --------  -----     -------  ------
     Total available-for-sale securities     416,045   97.0     387,868   93.8
   Short-term investments                     12,863    3.0      25,659    6.2
                                            --------  -----     -------  ------
                                            $428,908  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

                                      16
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

timing,  direction,  and degree of changes in interest  rates.  The  duration to
maturity of the fixed  maturity  portfolio was 11.9 years at March 31, 2004 with
an effective maturity of 7.2 years. This compared to the duration to maturity at
December 31, 2003 of 11.4 years and an effective maturity of 6.4 years.  Another
way that we manage risk and  liquidity  is to limit our  exposure on  individual
securities.  As of March 31, 2004 and December 31, 2003,  no  investment  in the
securities of any single issuer exceeded 2% of our investment portfolio.

     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. The portfolio's  yield was
also affected by a higher  percentage of the fixed income portfolio  invested in
short-term investments at low yielding money market rates.

CREDIT RISK

     We manage  credit risk in our  investment  portfolio by following  internal
investment quality guidelines and  diversification.  One way we attempt to limit
the  inherent  credit  risk  in  the  portfolio  is  to  maintain   higher-rated
investments.  The  following  table  describes our fixed  maturity  portfolio by
credit ratings (dollars in thousands).

                                       March 31, 2004       December 31, 2003
                                       --------------       -----------------
                                      Amount    Percent      Amount     Percent
                                      ------    -------      ------     -------
  Fixed Maturities:
    U.S. treasury and agency bonds  $  14,985      3.7%    $  15,722       4.2%
    AAA                               262,221     65.0       256,291      68.3
    AA                                 56,078     13.9        50,428      13.4
    A                                  54,925     13.6        35,937       9.6
    BBB                                10,145      2.4        10,347       2.8
    BB                                    344      0.1         2,204       0.6
    B                                   1,034      0.3         1,669       0.4
    CCC and lower                         213      0.1           525       0.1
    Not rated                           3,623      0.9         1,974       0.5
                                    ---------    -----     ---------     -----
         Total fixed maturities     $ 403,568    100.0%    $ 375,097     100.0%
                                    =========    =====     =========     =====

     Credit  risk is inherent in an  investment  portfolio.  We manage this risk
through a  structured  approach in which we assess the  effects of the  changing
economic landscape. In identifying "potentially distressed securities", we first
identify 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  for possible  inclusion on the  "potentially
distressed securities" list:

     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

                                       17
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

     o    Downgrades by a rating agency
     o    Past due interestor 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
contradictory  evidence  might  include,  among  other  factors,  a  liquidation
analysis performed by our investment advisers 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 LOSSES

     The following table  represents the cost,  unrealized  gains and unrealized
losses in the investment portfolio at March 31, 2004.

                                    Cost or      Gross       Gross
                                   Amortized  Unrealized   Unrealized    Fair
                                     Cost        Gains       Losses     Value
                                 ---------------------------------------------
   Fixed maturity securities:
     Corporate                    $   22,842  $   3,567    $   139   $  26,270
     U.S. Government                  14,445        275         78      14,642
     Mortgage-backed                      85          8          -          93
     State and municipal             348,430     14,448        315     362,563
                                 ----------------------------------------------
                Total                385,802     18,298        532     403,568
   Equity securities                  10,534      2,018         75      12,477
                                 ----------------------------------------------
                Total             $  396,336  $  20,316    $   607   $ 416,045
                                 ==============================================

     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.  Unrealized losses related to fixed maturities amounted to $532,000 at
March 31, 2004, with the preponderance of the unrealized losses related to bonds
with a maturity date in excess of ten years. The largest  individual  unrealized
loss on any one  security at March 31,  2004,  was  $139,000 on a $1 million par
bond.

     Of the  $607,000  gross  unrealized  losses  at March  31,  2004,  none was
included in our potentially distressed securities list mentioned above.

     Information  about  unrealized  gains and  losses is  subject  to  changing
conditions.  Securities with unrealized gains and losses will fluctuate, as will

                                       18
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

those securities that we have identified as potentially  distressed.  The recent
volatility of financial  markets has led to an increase in both unrealized gains
and losses.  We consider all of the factors  discussed earlier when we determine
if an unrealized loss is other than temporary,  including our ability and intent
to hold the  security  until the  value  recovers.  Our  current  evaluation  of
other-than-temporary  impairments  reflects our positive  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 first  quarter of 2004, we wrote down one security in the amount
of $100,000.  This was a $250,000 par value preferred stock in an  international
airline for which the fair value had fluctuated  near the 80% value for close to
one year.  This  particular  security is not currently in default;  however,  we
determined that the impairment was other than temporary. We hold no other equity
or fixed maturity investments 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 $17.1 million
in the first  quarter of 2004  compared  to $10.8  million  for the first  three
months of 2003.  The  increase in cash flow from  operating  activities  in 2004
reflects  the  growth in  premiums  in excess of  increases  in other  operating
expenses  paid  and  claims  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 $386.3 million at March 31, 2004,
from $369.9 million at December 31, 2003. This increase resulted  primarily from
the  first  quarter  2004  net  income  of $14.0  million,  an  increase  in net
unrealized  gains on invested assets  classified as  available-for-sale  of $1.6
million  (net of income tax),  and  additional  paid-in-capital  of $1.8 million
resulting  from the  exercise  of  employee  stock  options  and the related tax
benefit, offset by an increase in deferred compensation, representing additional
unvested restricted stock.

     Total  statutory  policyholders'  surplus  for our  insurance  subsidiaries
decreased to $125.4  million at March 31, 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

                                      19
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

contingency reserve. The balance in the statutory contingency reserve was $318.9
million at March 31,  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 $444.3  million  at March  31,  2004,
compared to $431.0 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 March 31,
2004,  Triad's  risk-to-capital  ratio was 15.2-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 as well as
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,
while not anticipated, 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 the entire  mortgage  industry and our
Company.

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 the December 31, 2003
Form 10-K.

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 increase or decrease from their current levels;

                                       20
<PAGE>
ITEM 2        MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
              CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)

     o    housing  transactions  requiring  mortgage  insurance may decrease for
          many  reasons   including   changes  in  interest  rates  or  economic
          conditions;
     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;
     o    our financial condition and competitive  position could be affected by
          legislation or regulation  impacting the mortgage guaranty industry or
          the Government  Sponsored  Entities,  specifically,  and the financial
          services industry in general;
     0    rating agencies may revise methodologies for determining our financial
          strength  ratings and may revise or withdraw the  assigned  ratings at
          any time;
     0    decreases in  persistency,  which are affected by loan  refinancing in
          periods of low interest rates, may have an adverse effect on earnings;
     0    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;
     0    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;
     0    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;
     0    our  performance  may be impacted by changes in the performance of the
          financial markets and general economic conditions;
     0    economic  downturns  in  regions  where our risk is more  concentrated
          could have a particularly  adverse  effect on our financial  condition
          and loss development;
     0    OFHEO  risk-based  capital rules could  severely  limit our ability to
          compete  against  various types of credit  protection  counterparties,
          including "AAA" rated private mortgage insurers;
     0    changes in the  eligibility  guidelines  of Fannie Mae or Freddie  Mac
          could have an adverse effect on the Company;
     0    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.

                                       21
<PAGE>
ITEM 3.       QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The Company's  market risk  exposures at March 31, 2004 have not materially
changed from those identified at 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 in our  internal  controls  over  financial
          reporting  identified in connection  with the evaluation  described in
          the above  paragraph that occurred  during the first quarter 2004 that
          have  materially  affected,  or are  reasonably  likely to  materially
          affect, our internal controls over financial reporting.

PART II

         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 - None

         ITEM 5. OTHER INFORMATION - None


                                       22
<PAGE>
         ITEM 6A. EXHIBITS AND REPORTS ON FORM 8-K

          (a)  Exhibits

               See exhibit index on Page 23

          (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.



                                    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: May 6, 2004

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



                                  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.



                                       23








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