##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended March 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number: 0-22342
 
 Triad Guaranty Inc.
 (Exact name of registrant as specified in its charter)
 DELAWARE(State or other jurisdiction of 
incorporation or organization)
    
    56-1838519(I.R.S. Employer
Identification No.)
 101 South Stratford Road 
Winston-Salem, North Carolina(Address of principal executive offices)
    
    27104(Zip Code)
 (336) 723-1282  (Registrants telephone number, including area code)
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ




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##### 



TRIAD GUARANTY INC.
 INDEX
 PagePart I. Financial InformationItem 1. Financial StatementsConsolidated Balance Sheets as of March 31, 2009
(Unaudited) and December 31, 2008
    
    
    1Consolidated Statements of Operations for the Three
Months Ended March 31, 2009 and 2008 (Unaudited)
    
    
    2Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2009 and 2008 (Unaudited)
    
    
    3Notes to Consolidated Financial Statements
    
    
    4Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    39Item 4T. Controls and Procedures
    
    
    39Part II. Other InformationItem 1. Legal Proceedings
    
    
    39Item 1A. Risk Factors
    
    
    40Item 6. Exhibits
    
    
    40Signature
    
    
    41Exhibit Index
    
    
    42EX-31.1EX-32.1




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PART I. FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 TRIAD GUARANTY INC.
 
 CONSOLIDATED BALANCE SHEETS
 March 31,
    
    
    December 31,(dollars in thousands, except per share data)
    
    2009
    
    
    2008(unaudited)ASSETSInvested assets:Securities available-for-sale, at fair value:Fixed maturities (amortized cost: 880,404 and $44,964)
    
    $
    904,904
    
    
    $
    854,186Equity securities (cost: $488 and $566)
    
    
    491
    
    
    
    583Short-term investments
    
    
    13,136
    
    
    
    40,653Total invested assets
    
    
    918,531
    
    
    
    895,422Cash and cash equivalents
    
    
    21,394
    
    
    
    39,940Real estate acquired in claim settlement
    
    
    526
    
    
    
    713Accrued investment income
    
    
    10,676
    
    
    
    10,515Property and equipment
    
    
    7,096
    
    
    
    7,747Reinsurance recoverable, net
    
    
    182,589
    
    
    
    150,848Other assets
    
    
    34,550
    
    
    
    25,349Total assets
    
    $
    1,175,362
    
    
    $
    1,130,534LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYLiabilities:Losses and loss adjustment expenses
    
    $
    1,262,746
    
    
    $
    1,187,840Unearned premiums
    
    
    15,958
    
    
    
    15,863Amounts payable to reinsurers
    
    
    1,001
    
    
    
    719Long-term debt
    
    
    34,532
    
    
    
    34,529Accrued interest on debt
    
    
    584
    
    
    
    1,275Accrued expenses and other liabilities
    
    
    41,934
    
    
    
    26,974Total liabilities
    
    
    1,356,755
    
    
    
    1,267,200Commitments and contingencies  Note # 5Stockholders deficit:Preferred stock, par value $0.01 per share  authorized 1,000,000
shares; no shares issued and outstanding
    
    
    
    
    
    
    Common stock, par value $0.01 per share  authorized 32,000,000
shares; issued and outstanding 15,215,378 shares at March 31,
2009 and 15,161,259 shares at December 31, 2008
    
    
    152
    
    
    
    151Additional paid-in capital
    
    
    112,822
    
    
    
    112,629Accumulated other comprehensive income, net of income tax liability
of $5,521 at March
31, 2009 and $3,265
at December 31,
2008
    
    
    16,316
    
    
    
    6,063Retained earnings (accumulated deficit)
    
    
    (310,683
    )
    
    
    (255,509
    )Total stockholders deficit
    
    
    (181,393
    )
    
    
    (136,666
    )Total liabilities and stockholders deficit
    
    $
    1,175,362
    
    
    $
    1,130,534
  1




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##### Table of Contents



TRIAD GUARANTY INC.
 
 CONSOLIDATED STATEMENTS OF OPERATIONS
 (unaudited)
 Three Months EndedMarch 31,(dollars in thousands, except per share data)
    
    2009
    
    
    2008Revenue:Premiums written:Direct
    
    $
    55,623
    
    
    $
    89,386Ceded
    
    
    (11,130
    )
    
    
    (15,995
    )Net premiums written
    
    
    44,493
    
    
    
    73,391Change in unearned premiums
    
    
    (135
    )
    
    
    (1,326
    )Earned premiums
    
    
    44,358
    
    
    
    72,065Net investment income
    
    
    11,192
    
    
    
    9,546Net realized investment (losses) gains
    
    
    (4,565
    )
    
    
    2,703Other income
    
    
    2
    
    
    
    250,987
    
    
    
    84,316Losses and expenses:Net losses and loss adjustment expenses
    
    
    101,577
    
    
    
    221,259Net change in premium deficiency reserve
    
    
    
    
    
    
    15,000Interest expense on debt
    
    
    694
    
    
    
    1,476Policy acquisition costs
    
    
    
    
    
    
    39,416Other operating expenses (net of acquisition costs deferred)
    
    
    9,411
    
    
    
    14,105111,682
    
    
    
    291,256Loss before income tax benefit
    
    
    (60,695
    )
    
    
    (206,940
    )Income tax benefit:Current
    
    
    
    
    
    
    (3
    )Deferred
    
    
    (5,521
    )
    
    
    (56,923
    )(5,521
    )
    
    
    (56,926
    )Net loss
    
    $
    (55,174
    )
    
    $
    (150,014
    )Loss per common and common equivalent share:Basic
    
    $
    (3.68
    )
    
    $
    (10.09
    )Diluted
    
    $
    (3.68
    )
    
    $
    (10.09
    )Shares used in computing loss per common and
common equivalent share:Basic
    
    
    14,993,742
    
    
    
    14,868,610Diluted
    
    
    14,993,742
    
    
    
    14,868,610
 .
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TRIAD GUARANTY INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOW
 (unaudited)
 Three Months EndedMarch 31,(dollars in thousands)
    
    2009
    
    
    2008Operating activitiesNet loss
    
    $
    (55,174
    )
    
    $
    (150,014
    )Adjustments to reconcile net loss to net cash provided by
operating activities:Losses, loss adjustment expenses and unearned premium reserves
    
    
    75,001
    
    
    
    189,203Net change in premium deficiency reserve
    
    
    
    
    
    
    15,000Accrued expenses and other liabilities
    
    
    14,960
    
    
    
    (1,333
    )Income taxes recoverable
    
    
    78
    
    
    
    Reinsurance, net
    
    
    (31,459
    )
    
    
    2,676Accrued investment (loss) income
    
    
    (161
    )
    
    
    522Policy acquisition costs deferred
    
    
    
    
    
    
    (3,173
    )Policy acquisition costs
    
    
    
    
    
    
    39,416Net realized investment losses (gains)
    
    
    4,565
    
    
    
    (2,703
    )Provision for depreciation
    
    
    649
    
    
    
    1,566Accretion of discount on investments
    
    
    285
    
    
    
    324Deferred income taxes
    
    
    (5,521
    )
    
    
    (56,923
    )Prepaid federal income taxes
    
    
    
    
    
    
    410Real estate acquired in claim settlement, net of write-downs
    
    
    187
    
    
    
    1,867Accrued interest on debt
    
    
    (691
    )
    
    
    (771
    )Other assets
    
    
    357
    
    
    
    406Other operating activities
    
    
    259
    
    
    
    (10,576
    )Net cash provided by operating activities
    
    
    3,335
    
    
    
    25,897Investing activitiesSecurities available-for-sale:Purchases  fixed maturities
    
    
    (88,391
    )
    
    
    (136,426
    )Sales  fixed maturities
    
    
    38,938
    
    
    
    96,428Maturities  fixed maturities
    
    
    
    
    
    
    7,176Sales  equities
    
    
    4
    
    
    
    266Net change in short-term investments
    
    
    27,566
    
    
    
    43,180Property and equipment
    
    
    2
    
    
    
    (707
    )Net cash (used in) provided by investing activities
    
    
    (21,881
    )
    
    
    9,917Financing activitiesRepayment of revolving credit facility
    
    
    
    
    
    
    (80,000
    )Net cash used in financing activities
    
    
    
    
    
    
    (80,000
    )Foreign currency translation adjustment on cash and cash equivalents
    
    
    
    
    
    
    (81
    )Net change in cash and cash equivalents
    
    
    (18,546
    )
    
    
    (44,267
    )Cash and cash equivalents at beginning of period
    
    
    39,940
    
    
    
    124,811Cash and cash equivalents at end of period
    
    $
    21,394
    
    
    $
    80,544Supplemental schedule of cash flow informationCash (received) paid during the period for:
  3




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TRIAD GUARANTY INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 March 31, 2009
 1. The Company
  2. Going Concern
   4




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3. Accounting Policies and Basis of Presentation
 Basis of Presentation
  Recent Accounting Pronouncements
 Determining Fair Value When
the Volume and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly Fair
Value Measurements
 5




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The Hierarchy of Generally Accepted Accounting
Principles The Meaning of Present Fairly in Conformity With Generally Accepted Accounting
Principles
 Noncontrolling Interests in Consolidated
Financial Statements  an amendment of Accounting Research Bulletin (ARB) No. 51
 Business Combinationsa replacement of FASB
Statement No. 141
 Recognition and
Presentation of Other-Than-Temporary Impairments
 6




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4. Consolidation
  5. Commitments and Contingencies
 Reinsurance
    7




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Insurance In Force, Dividend Restrictions, and Statutory Results
  March 31,
    
    
    December 31,
    
    
    March 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    2008Net risk
    
    $
    10,630,486
    
    
    $
    11,019,036
    
    
    $
    11,969,155Statutory capital and surplus
    
    $
    393,328
    
    
    $
    88,027
    
    
    $
    203,352Statutory contingency reserve
    
    
    
    
    
    
    
    
    
    
    228,208Total
    
    $
    393,328
    
    
    $
    88,027
    
    
    $
    431,560Risk-to-capital ratio
    
    
    27.0 to 1
    
    
    
    125.2 to 1
    
    
    27.7 to 1
     8




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Loss Reserves
  Litigation
    6. Fair Value Measurement
  9




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##### Table of Contents



Level 1:
    
    Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities.Level 2:
    
    Quoted prices in markets that are not active, or inputs that are
observable either directly or indirectly, for substantially the full term of the
asset or liability.Level 3:
    
    Prices or valuation techniques that require inputs that are both
significant to the fair value measurement and unobservable (i.e., supported with
little or no market activity).
  Fair Value Measurements at Reporting Date UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(dollars in thousands)
    
    March 31, 2009
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsSecurities available-for-saleFixed maturities
    
    $
    904,904
    
    
    $
    
    
    
    $
    903,146
    
    
    $
    1,757Equity securities
    
    
    491
    
    
    
    491
    
    
    
    
    
    
    
    Total
    
    $
    905,395
    
    
    $
    491
    
    
    $
    903,146
    
    
    $
    1,757
 Fair Value Measurements at Reporting Date UsingQuoted Pricesin Active
    
    
    SignificantMarkets for
    
    
    Other
    
    
    SignificantIdentical
    
    
    Observable
    
    
    UnobservableAssets
    
    
    Inputs
    
    
    Inputs(dollars in thousands)
    
    December 31, 2008
    
    
    (Level 1)
    
    
    (Level 2)
    
    
    (Level 3)AssetsSecurities available-for-saleFixed maturities
    
    $
    854,186
    
    
    $
    
    
    
    $
    851,651
    
    
    $
    2,535Equity securities
    
    
    583
    
    
    
    583
    
    
    
    
    
    
    
    Total
    
    $
    854,769
    
    
    $
    583
    
    
    $
    851,651
    
    
    $
    2,535
 
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Fair Value Measurement Using Significant
Unobservable Inputs (Level 3)
Certain Bonds in Fixed Maturities AFS Portfolio
 Three Months EndedMarch 31,(dollars in thousands)
    
    2009
    
    
    2008Beginning balance
    
    $
    2,535
    
    
    $
    7,402Total gains and losses (realized and unrealized):Included in operations
    
    
    (288
    )
    
    
    (131
    )Included in other comprehensive income
    
    
    (83
    )
    
    
    (43
    )Purchases, issuances and settlements
    
    
    (407
    )
    
    
    (3,883
    )Transfers in and/or out of Level 3
    
    
    
    
    
    
    Ending balance
    
    $
    1,757
    
    
    $
    3,345The amount of total gains and losses for the period included in
operations attributable to the change in unrealized gains or
losses relating to assets still held at the reporting date.
    
    $
    (371
    )
    
    $
    (63
    )
  7. Earnings (Loss) Per Share (EPS)
  8. Comprehensive Income (Loss)
  11




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9. Income Taxes
  10. Exit Costs
   
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
   12




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Overview
    
    
    earned renewal premiums from the remaining insurance in force, net of:
 o
    
    reinsurance premiums ceded, primarily for captive reinsurance, ando
    
    refunds paid or accrued resulting from the
cancellation of insurance in force or for coverage anticipated to be
rescinded due to violations of certain provisions of a master policy;
and
 
    
    investment income.
   
    
    paid claims;
    
    changes in reserves for estimated future claim payments on loans that are
currently in default;
    
    general and administrative costs of servicing existing policies;
    
    other general business expenses; and
    
    interest expense on long-term debt.
 13




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##### Table of Contents




    
    the conditions of the housing, mortgage and capital markets that have a
direct impact on default rates, mitigation efforts, cure rates and ultimately
the amount of claims paid;
    
    the overall general state of the economy and job market;
    
    persistency levels on our remaining insurance in force;
    
    operating efficiencies; and
    
    the level of investment yield, including realized gains and losses, on our
investment portfolio.
  Recent Events Affecting our Business
   
    
    Required Triad to submit a corrective plan to the Division;
    
    Prohibits all stockholder dividends from Triad to its parent company without
the prior approval of the Division;
    
    Prohibits interest and principal payments on Triads surplus note to its
parent company without the prior approval of the Division;
    
    Restricts Triad from making any payments or entering into any transaction
that involves the transfer of assets to, or liabilities from, any affiliated
parties without the prior approval of the Division;
    
    Requires Triad to obtain prior written approval from the Division before
entering into certain transactions with unaffiliated parties;
    
    Requires Triad to meet with the Division in person or via teleconference as
necessary; and
    
    Requires Triad to furnish to the Division certain reports, agreements,
actuarial opinions and information on an ongoing basis at specified times.
  14




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
    
    Effective June 1, 2009 or at a later date as determined by the Division, all valid
claims under Triads mortgage guaranty insurance policies will be paid 60% in cash and 40%
by recording a deferred payment obligation (DPO);
    
    At March 31, 2009, Triad was required to adjust surplus and reserves reflecting the
impact of the Corrective Order on future paid claims;
    
    The DPO will accrue a carrying charge based on the investment yield earned by Triads
investment portfolio;
    
    Payment of the carrying charge and the DPO will be subject to Triads future financial
performance and will require the approval of the Division;
    
    Procedures to follow to account for the impact of the Corrective Order in the financial
statements prepared in accordance with SAP;
    
    Upon payment of a claim under these provisions, Triad shall be deemed to have fully
satisfied its obligations under the respective insurance policy;
    
    Other restrictions and requirements affecting the payment and transferability of the
DPOs and associated carrying charge; and
    
    Certain reporting requirements.
    15




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Consolidated Results of Operations
  16




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Three Months EndedMarch 31,(dollars in thousands, except
    
    
    
    
    
    
    
    
    
    %per share data)
    
    2009
    
    2008
    
    ChangeEarned premiums
    
    $
    44,358
    
    
    $
    72,065
    
    
    
    (38
    )Net losses and loss adjustment expenses
    
    
    101,577
    
    
    
    221,259
    
    
    
    (54
    )Net loss
    
    
    (55,174
    )
    
    
    (150,014
    )
    
    
    (63
    )Diluted loss per share
    
    
    (3.68
    )
    
    
    (10.09
    )
    
    
    (64
    )
   
    
    Loans on properties in California, Florida, Arizona, and Nevada (which we refer
to collectively as distressed markets). At March 31, 2009, the default rate for
the distressed markets was 29.0% compared to 9.6% for the remaining portfolio and
defaults in the distressed markets comprised 60.3% of the gross risk in default
while only comprising 34.5% of total risk in force.
    
    Policies originated in 2006 and 2007. At March 31, 2009, the default rate for
these policy years was 19.9% compared to 9.6% for the other policy years and
defaults in these policy years comprised 74.2% of the gross risk in default while
only comprising 57.4% of total risk in force.
     17




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Production
  Insurance and Risk in Force
  March 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    % ChangePrimary insurance:Primary flow insurance
    
    $
    37,881
    
    
    $
    42,086
    
    
    
    (10
    )Structured bulk insurance
    
    
    3,780
    
    
    
    4,374
    
    
    
    (14
    )Total Primary insurance
    
    
    41,661
    
    
    
    46,460
    
    
    
    (10
    )Modified Pool insurance
    
    
    18,825
    
    
    
    21,187
    
    
    
    (11
    )Total insurance
    
    $
    60,486
    
    
    $
    67,647
    
    
    
    (11
    )
   
    
    The percentage of business defined as non-prime credit quality;
    
    The percentage of Alt-A business;
    
    The percentage of business with a loan-to-value (LTV) greater than 95%;
    
    The percentage of interest only loans and adjustable rate mortgages
(ARMs), particularly ARMs with potential negative amortization;
    
    The percentage of condominium property types;
    
    The percentage of non-primary residence occupancy status;
 18




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
    
    The percentage of loans in excess of $250,000;
    
    The concentration of risk in distressed market states; and
    
    The presence of multiple risk factors on a single insured loan.
 Risk in Force (1)
 Primary
    
    
    Modified PoolMarch 31,
    
    
    March 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2009
    
    
    2008Gross Risk in Force
    
    $
    10,853
    
    
    $
    12,126
    
    
    $
    5,468
    
    
    $
    6,194Credit Quality:Prime
    
    
    76.4
    %
    
    
    75.2
    %
    
    
    28.1
    %
    
    
    27.8
    %Alt-A
    
    
    20.2
    
    
    
    21.2
    
    
    
    71.1
    
    
    
    71.4A-Minus
    
    
    3.0
    
    
    
    3.1
    
    
    
    0.7
    
    
    
    0.7Sub Prime
    
    
    0.4
    
    
    
    0.5
    
    
    
    0.1
    
    
    
    0.1Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %LTV:Greater than 95%
    
    
    24.9
    %
    
    
    25.3
    %
    
    
    
    %
    
    
    
    %90.01% to 95.00%
    
    
    32.7
    
    
    
    32.6
    
    
    
    0.2
    
    
    
    0.390.00% and below
    
    
    42.4
    
    
    
    42.1
    
    
    
    99.8
    
    
    
    99.7Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Loan Type:Fixed
    
    
    66.9
    %
    
    
    65.5
    %
    
    
    26.5
    %
    
    
    26.1
    %Interest Only
    
    
    10.3
    
    
    
    10.6
    
    
    
    23.0
    
    
    
    23.4ARM (amortizing) fixed period 5 years or
greater
    
    
    8.4
    
    
    
    9.1
    
    
    
    30.8
    
    
    
    31.5ARM (amortizing) fixed period less than 5
years
    
    
    2.1
    
    
    
    2.3
    
    
    
    5.6
    
    
    
    5.8ARM (potential negative amortization)
    
    
    12.3
    
    
    
    12.5
    
    
    
    14.1
    
    
    
    13.2Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Property Type:Condominium
    
    
    10.8
    %
    
    
    10.5
    %
    
    
    9.7
    %
    
    
    9.5
    %Other (principally single-family detached)
    
    
    89.2
    
    
    
    89.5
    
    
    
    90.3
    
    
    
    90.5Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Occupancy Status:Primary residence
    
    
    87.7
    %
    
    
    87.7
    %
    
    
    73.2
    %
    
    
    73.5
    %Secondary home
    
    
    8.0
    
    
    
    7.9
    
    
    
    6.1
    
    
    
    6.1Non-owner occupied
    
    
    4.3
    
    
    
    4.4
    
    
    
    20.7
    
    
    
    20.4Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Mortgage Amount:$0 - $50,000
    
    
    0.8
    %
    
    
    0.9
    %
    
    
    0.5
    %
    
    
    0.5
    %$51,000 - $100,000
    
    
    9.3
    
    
    
    9.5
    
    
    
    5.3
    
    
    
    5.3$100,001 - $250,000
    
    
    51.9
    
    
    
    51.8
    
    
    
    45.3
    
    
    
    45.5$250,001 - $500,000
    
    
    32.3
    
    
    
    31.9
    
    
    
    42.1
    
    
    
    42.2Over $500,000
    
    
    5.7
    
    
    
    5.9
    
    
    
    6.8
    
    
    
    6.5Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %Market Status:Distressed market states (AZ, CA, FL, NV)
    
    
    27.1
    %
    
    
    27.1
    %
    
    
    49.0
    %
    
    
    48.3
    %Non-distressed market states
    
    
    72.9
    
    
    
    72.9
    
    
    
    51.0
    
    
    
    51.7Total
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
    
    
    100.0
    %
 
 (1)
    
    Percentages represent distribution of gross risk in force on a per policy basis and does not
account for
risk ceded to captive reinsurers or applicable stop-loss amounts and deductibles on Modified
Pool
structured bulk transactions. 19




---



##### Table of Contents



March 31, 2009Primary
    
    
    Modified PoolGross Risk
    
    
    
    
    
    
    Gross Risk(dollars in millions)
    
    in Force *
    
    
    Percent
    
    
    in Force *
    
    
    PercentVintage Year2004 and before
    
    $
    2,331.0
    
    
    
    21.5
    
    
    $
    781.7
    
    
    
    14.32005
    
    
    1,358.9
    
    
    
    12.5
    
    
    
    1,842.8
    
    
    
    33.72006
    
    
    2,288.4
    
    
    
    21.1
    
    
    
    2,057.7
    
    
    
    37.62007
    
    
    4,233.8
    
    
    
    39.0
    
    
    
    786.2
    
    
    
    14.42008
    
    
    640.5
    
    
    
    5.9
    
    
    
    
    
    
    
    Total
    
    $
    10,852.6
    
    
    
    100.0
    
    
    $
    5,468.4
    
    
    
    100.0
 
 *
    
    Gross risk in force is on a per policy basis and does not account for risk ceded to captive
reinsurers or
applicable stop-loss amounts and deductibles on Modified Pool structured bulk transactions. 20




---



##### Table of Contents



Revenues
  Three Months EndedMarch 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    % ChangeDirect premium written before the
impact of
refunds
    
    $
    79,997
    
    
    $
    91,160
    
    
    
    (12
    )Less:Cash refunds
    
    
    (5,323
    )
    
    
    (1,376
    )
    
    
    287Change in accruals
    
    
    (19,051
    )
    
    
    (398
    )
    
    
    4,687Direct premium written
    
    
    55,623
    
    
    
    89,386
    
    
    
    (38
    )Ceded premium written
    
    
    (11,130
    )
    
    
    (15,995
    )
    
    
    (30
    )Net premium written
    
    
    44,493
    
    
    
    73,391
    
    
    
    (39
    )Change in unearned premiums
    
    
    (135
    )
    
    
    (1,326
    )
    
    
    (90
    )Earned premiums
    
    $
    44,358
    
    
    $
    72,065
    
    
    
    (38
    )Net investment income
    
    $
    11,192
    
    
    $
    9,546
    
    
    
    17Net realized investment (losses) gains
    
    $
    (4,565
    )
    
    $
    2,703
    
    
    
    (269
    )Total revenues
    
    $
    50,987
    
    
    $
    84,316
    
    
    
    (40
    )
   21




---



##### Table of Contents



Losses and Expenses
  Three Months EndedMarch 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    % ChangeNet losses and loss
adjustment expenses:Net paid claims
    
    $
    53,920
    
    
    $
    40,471
    
    
    
    33Net change in loss reserves
    
    
    39,628
    
    
    
    174,561
    
    
    
    (77
    )Loss adjustment expenses
    
    
    8,029
    
    
    
    6,227
    
    
    
    29Total
    
    
    101,577
    
    
    
    221,259
    
    
    
    (54
    )Net change in premium deficiency
    
    
    
    
    
    
    15,000
    
    
    
    (100
    )Policy acquisition costs
    
    
    
    
    
    
    39,416
    
    
    
    (100
    )Other operating expenses (net of acquisition
costs deferred)
    
    
    9,411
    
    
    
    14,105
    
    
    
    (33
    )Loss ratio
    
    
    229.0
    %
    
    
    307.0
    %
    
    
    (25
    )Expense ratio
    
    
    21.2
    %
    
    
    25.5
    %
    
    
    (17
    )Combined ratio
    
    
    250.2
    %
    
    
    332.5
    %
    
    
    (25
    )
   22




---



##### Table of Contents



Three Months EndedMarch 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    % ChangeDirect Paid claims:Primary insurance
    
    $
    56,277
    
    
    $
    29,235
    
    
    
    92.5Modified Pool insurance
    
    
    7,735
    
    
    
    10,852
    
    
    
    (28.7
    )Total
    
    $
    64,012
    
    
    $
    40,087
    
    
    
    59.7Number of claims paid:Primary insurance
    
    
    1,044
    
    
    
    686
    
    
    
    52.2Modified Pool insurance
    
    
    131
    
    
    
    167
    
    
    
    (21.6
    )Total
    
    
    1,175
    
    
    
    853
    
    
    
    37.7
   Primary
    
    Modified PoolAverage
    
    Average
    
    Average
    
    AverageLoan Size
    
    Insured Risk
    
    Loan Size
    
    Insured RiskVintage Year2004 and Prior
    
    $
    117,271
    
    
    $
    29,935
    
    
    $
    139,883
    
    
    $
    41,6362005
    
    
    155,532
    
    
    
    40,922
    
    
    
    176,322
    
    
    
    57,3872006
    
    
    207,178
    
    
    
    53,565
    
    
    
    263,235
    
    
    
    69,2092007
    
    
    206,736
    
    
    
    55,645
    
    
    
    272,816
    
    
    
    79,1312008
    
    
    203,791
    
    
    
    46,875
    
    
    
    
    
    
    
    Overall Average
    
    $
    171,062
    
    
    $
    44,560
    
    
    $
    207,891
    
    
    $
    60,389
  23




---



##### Table of Contents



Primary
    
    
    Modified PoolAverage
    
    
    Average
    
    
    Average
    
    
    AverageLoan Size
    
    
    Insured Risk
    
    
    Loan Size
    
    
    Insured RiskDistressed States:California
    
    $
    336,689
    
    
    $
    84,203
    
    
    $
    331,926
    
    
    $
    88,560Florida
    
    
    201,863
    
    
    
    53,499
    
    
    
    211,444
    
    
    
    57,856Arizona
    
    
    198,296
    
    
    
    52,143
    
    
    
    204,018
    
    
    
    63,020Nevada
    
    
    241,420
    
    
    
    65,105
    
    
    
    226,455
    
    
    
    71,652Average distressed states
    
    $
    240,688
    
    
    $
    62,445
    
    
    $
    259,911
    
    
    $
    72,270Average non-distressed states
    
    $
    154,351
    
    
    $
    40,268
    
    
    $
    171,795
    
    
    $
    52,145
   Cumulative Paid Loss Ratiosas of March 31,Book Year
    
    2009
    
    20081996
    
    
    14.6
    %
    
    
    14.5
    %1997
    
    
    10.5
    
    
    
    10.31998
    
    
    6.9
    
    
    
    6.81999
    
    
    9.9
    
    
    
    9.82000
    
    
    35.9
    
    
    
    35.32001
    
    
    32.5
    
    
    
    31.32002
    
    
    33.7
    
    
    
    32.12003
    
    
    20.9
    
    
    
    17.62004
    
    
    28.2
    
    
    
    19.12005
    
    
    53.5
    
    
    
    27.32006
    
    
    50.6
    
    
    
    17.02007
    
    
    27.9
    
    
    
    1.62008
    
    
    1.1
    
    
    
    
   24




---



##### Table of Contents



Three Months EndedMarch 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    % ChangeIncrease in reserve for losses and
LAE on a gross basis before the
benefit of captives, Modified Pool
structures and rescissions
    
    $
    184,642
    
    
    $
    217,814
    
    
    
    (15
    )Less:Ceded reserves to captive reinsurers
    
    
    30,018
    
    
    
    8,633
    
    
    
    248Impact of Modified Pool structures
    
    
    67,629
    
    
    
    11,063
    
    
    
    511Impact of anticipated rescissions
    
    
    42,104
    
    
    
    18,924
    
    
    
    122Net increase in reserve for losses
and loss adjustment expenses
    
    $
    44,891
    
    
    $
    179,194
    
    
    
    (75
    )
  
    
    We increased the rescission factors utilized in the reserve methodology for
certain segments of the default inventory in the first quarter of 2009, which
mitigated the reserve increase;
    
    The actual number of loans in default increased by 20% in the first quarter of
2009 while defaults increased by 30% during the first quarter of 2008;
    
    During the first quarter of 2008, the composition of our default inventory
experienced a large increase in the percentage of defaults from distressed markets,
which have higher risk per loan amounts. This percentage did not change during the
first quarter of 2009; and
    
    In the first quarter of 2009, we received a much greater benefit from structures,
both from captive reinsurance and modified pool, than we did in the first quarter of
2008. In the first quarter of 2009, the increase in benefits received from captive
reinsurance and modified pool structures amounted to 71% of the gross change in loss
reserves while this percentage was only 14% in the first quarter of 2008.
  March 31,
    
    
    December 31,
    
    
    March 31,(dollars in thousands)
    
    2009
    
    
    2008
    
    
    2008Primary insurance:Reserves for reported defaults
    
    $
    779,633
    
    
    $
    728,981
    
    
    $
    388,805Reserves for defaults incurred but not reported
    
    
    82,743
    
    
    
    109,716
    
    
    
    40,601Total Primary insurance
    
    
    862,376
    
    
    
    838,697
    
    
    
    429,406Modified Pool insurance:Reserves for reported defaults
    
    
    364,930
    
    
    
    309,112
    
    
    
    102,118Reserves for defaults incurred but not reported
    
    
    12,640
    
    
    
    22,494
    
    
    
    7,275Total Modified Pool insurance
    
    
    377,570
    
    
    
    331,606
    
    
    
    109,393Reserve for loss adjustment expenses
    
    
    22,800
    
    
    
    17,537
    
    
    
    8,967Total reserves for losses and loss adjustment
expenses
    
    $
    1,262,746
    
    
    $
    1,187,840
    
    
    $
    547,766
  25




---



##### Table of Contents



March 31,
    
    December 31,
    
    March 31,(dollars in thousands)
    
    2009
    
    2008
    
    2008% of Gross Risk In Force:California
    
    
    14.6
    %
    
    
    14.6
    %
    
    
    15.2
    %Florida
    
    
    11.7
    %
    
    
    11.6
    %
    
    
    12.1
    %Arizona
    
    
    5.2
    %
    
    
    5.2
    %
    
    
    5.5
    %Nevada
    
    
    3.0
    %
    
    
    3.0
    %
    
    
    3.1
    %Total Distressed Market States
    
    
    34.5
    %
    
    
    34.4
    %
    
    
    35.9
    %% of Gross Risk in Default:California
    
    
    25.4
    %
    
    
    25.1
    %
    
    
    22.0
    %Florida
    
    
    22.4
    %
    
    
    23.1
    %
    
    
    22.5
    %Arizona
    
    
    7.4
    %
    
    
    7.2
    %
    
    
    5.9
    %Nevada
    
    
    5.1
    %
    
    
    5.0
    %
    
    
    4.1
    %Total Distressed Market States
    
    
    60.3
    %
    
    
    60.4
    %
    
    
    54.5
    %% of Gross Reserves:California
    
    
    24.5
    %
    
    
    24.4
    %
    
    
    21.8
    %Florida
    
    
    23.3
    %
    
    
    23.5
    %
    
    
    22.6
    %Arizona
    
    
    8.1
    %
    
    
    7.4
    %
    
    
    5.7
    %Nevada
    
    
    5.4
    %
    
    
    5.0
    %
    
    
    4.1
    %Total Distressed Market States
    
    
    61.3
    %
    
    
    60.3
    %
    
    
    54.2
    %
   March 31,
    
    December 31,
    
    March 31,(dollars in thousands)
    
    2009
    
    2008
    
    2008Risk on loans in default
    
    $
    3,297,135
    
    
    $
    2,729,313
    
    
    $
    1,388,181Gross Case Reserves as a percentage of
risk in default (1)
    
    
    50.1
    %
    
    
    49.3
    %
    
    
    42.4
    %
 
 (1)
    
    Reflects gross case reserves, which excludes IBNR and ceded reserves and the benefit from
Modified Pool
structures, as a percent of risk in default for total Primary delinquent loans and total
Modified Pool delinquent
loans. 26




---



##### Table of Contents



March 31,
    
    December 31,
    
    March 31,(dollars in thousands)
    
    2009
    
    2008
    
    2008Total business:Number of insured loans in force
    
    
    334,101
    
    
    
    345,055
    
    
    
    374,012With deductibles
    
    
    51,356
    
    
    
    52,414
    
    
    
    57,515Without deductibles
    
    
    282,745
    
    
    
    292,641
    
    
    
    316,497Number of loans in default
    
    
    48,332
    
    
    
    40,286
    
    
    
    21,916With deductibles
    
    
    11,135
    
    
    
    9,058
    
    
    
    5,128Without deductibles
    
    
    37,197
    
    
    
    31,228
    
    
    
    16,788Percentage of loans in default (default rate)
    
    
    14.47
    %
    
    
    11.68
    %
    
    
    5.86
    %Percentage of loans in default excluding
deductibles
    
    
    13.16
    %
    
    
    10.67
    %
    
    
    5.30
    %Primary insurance:Number of insured loans in force
    
    
    243,548
    
    
    
    252,368
    
    
    
    272,289Number of loans in default
    
    
    28,646
    
    
    
    24,241
    
    
    
    13,322Percentage of loans in default
    
    
    11.76
    %
    
    
    9.61
    %
    
    
    4.89
    %Modified Pool insurance:Number of insured loans in force
    
    
    90,553
    
    
    
    92,687
    
    
    
    101,723With deductibles
    
    
    51,262
    
    
    
    52,393
    
    
    
    57,492Without deductibles
    
    
    39,291
    
    
    
    40,294
    
    
    
    44,231Number of loans in default
    
    
    19,686
    
    
    
    16,045
    
    
    
    8,594With deductibles
    
    
    11,135
    
    
    
    9,058
    
    
    
    5,128Without deductibles
    
    
    8,551
    
    
    
    6,987
    
    
    
    3,466Percentage of loans in default
    
    
    21.74
    %
    
    
    17.31
    %
    
    
    8.45
    %Percentage of loans in default excluding
deductibles
    
    
    21.76
    %
    
    
    17.34
    %
    
    
    7.84
    %
    27




---



##### Table of Contents



Expenses and Taxes
      Financial Position
   28




---



##### Table of Contents



Deferred Policy Acquisition Costs
  Prepaid Federal Income Taxes and Deferred Income Taxes
    29




---



##### Table of Contents



Investment Portfolio
 Portfolio Description
    March 31, 2009
    
    
    December 31, 2008(dollars in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentFixed maturity securities:U. S. government obligations
    
    $
    19,824
    
    
    
    2.2
    %
    
    $
    20,168
    
    
    
    2.3
    %State and municipal bonds
    
    
    132,857
    
    
    
    14.5
    %
    
    
    159,394
    
    
    
    17.8
    %Corporate bonds
    
    
    629,205
    
    
    
    68.5
    %
    
    
    547,945
    
    
    
    61.2
    %Mortgage-backed bonds
    
    
    123,018
    
    
    
    13.4
    %
    
    
    126,679
    
    
    
    14.1
    %Total fixed maturities
    
    
    904,904
    
    
    
    98.6
    %
    
    
    854,186
    
    
    
    95.4
    %Equity securities
    
    
    491
    
    
    
    0.1
    %
    
    
    583
    
    
    
    0.1
    %Total available-for-sale securities
    
    
    905,395
    
    
    
    98.7
    %
    
    
    854,769
    
    
    
    95.5
    %Short-term investments
    
    
    13,136
    
    
    
    1.3
    %
    
    
    40,653
    
    
    
    4.5
    %$
    918,531
    
    
    
    100.0
    %
    
    $
    895,422
    
    
    
    100.0
    %
 30




---



##### Table of Contents



Three Months EndedMarch 31,(dollars in thousands)
    
    2009
    
    2008Average investments at cost or amortized cost
    
    $
    889,993
    
    
    $
    763,732Pre-tax net investment income
    
    $
    11,192
    
    
    $
    9,547Book yield
    
    
    4.8
    %
    
    
    4.6
    %Pre-tax realized investment (losses) gains
    
    $
    (4,565
    )
    
    $
    2,703
  Unrealized Gains and Losses
  Cost or
    
    
    Gross
    
    
    GrossAmortized
    
    
    Unrealized
    
    
    Unrealized
    
    
    Fair(dollars in thousands)
    
    Cost
    
    
    Gains
    
    
    Losses
    
    
    ValueFixed maturity securities:U. S. government obligations
    
    $
    19,287
    
    
    $
    537
    
    
    $
    
    
    
    $
    19,824State and municipal bonds
    
    
    127,466
    
    
    
    5,391
    
    
    
    
    
    
    
    132,857Corporate bonds
    
    
    614,884
    
    
    
    14,321
    
    
    
    
    
    
    
    629,205Mortgage-backed bonds
    
    
    118,767
    
    
    
    4,251
    
    
    
    
    
    
    
    123,018Subtotal, fixed maturities
    
    
    880,404
    
    
    
    24,500
    
    
    
    
    
    
    
    904,904Equity securities
    
    
    488
    
    
    
    3
    
    
    
    
    
    
    
    491Short term investments
    
    
    12,999
    
    
    
    137
    
    
    
    
    
    
    
    13,136Total securities
    
    $
    893,891
    
    
    $
    24,640
    
    
    $
    
    
    
    $
    918,531
   31




---



##### Table of Contents



Credit Risk
  March 31, 2009
    
    
    December 31, 2008(dollars in thousands)
    
    Amount
    
    
    Percent
    
    
    Amount
    
    
    PercentFixed Maturities:U.S. treasury and agency bonds
    
    $
    19,824
    
    
    
    2.2
    
    
    $
    20,168
    
    
    
    2.4AAA
    
    
    217,032
    
    
    
    24.0
    
    
    
    236,975
    
    
    
    27.7AA
    
    
    216,624
    
    
    
    23.9
    
    
    
    183,916
    
    
    
    21.5A
    
    
    419,632
    
    
    
    46.4
    
    
    
    381,936
    
    
    
    44.7BBB
    
    
    14,872
    
    
    
    1.6
    
    
    
    25,203
    
    
    
    3.0BB
    
    
    13,206
    
    
    
    1.5
    
    
    
    1,239
    
    
    
    0.1B
    
    
    472
    
    
    
    0.1
    
    
    
    619
    
    
    
    0.1CCC
    
    
    1,868
    
    
    
    0.2
    
    
    
    1,523
    
    
    
    0.2CC and lower
    
    
    379
    
    
    
    0.0
    
    
    
    48
    
    
    
    0.0Not rated
    
    
    995
    
    
    
    0.1
    
    
    
    2,559
    
    
    
    0.3Total fixed maturities
    
    $
    904,904
    
    
    
    100.0
    
    
    $
    854,186
    
    
    
    100.0Equity Securities:Preferred stocks:A
    
    
    281
    
    
    
    57.2
    
    
    
    429
    
    
    
    73.6BBB
    
    
    193
    
    
    
    39.3
    
    
    
    133
    
    
    
    22.8C
    
    
    17
    
    
    
    3.5
    
    
    
    21
    
    
    
    3.6Total equity securities
    
    $
    491
    
    
    
    100.0
    
    
    $
    583
    
    
    
    100.0
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Credit Quality Without Benefitof Credit Enhancements(dollars in thousands)
    
    Amount
    
    
    PercentU.S. treasury and agency bonds
    
    $
    7,613
    
    
    
    0.8AAA
    
    
    186,800
    
    
    
    20.6AA
    
    
    136,467
    
    
    
    15.1A
    
    
    521,275
    
    
    
    57.6BBB
    
    
    22,217
    
    
    
    2.5BB
    
    
    14,079
    
    
    
    1.6B
    
    
    1,637
    
    
    
    0.2CCC
    
    
    
    
    
    
    CC and below
    
    
    379
    
    
    
    0.0Not rated
    
    
    14,437
    
    
    
    1.6Total Fixed Maturities
    
    $
    904,904
    
    
    
    100.0
   Financial GuarantorsCredit Enhanced State andMunicipal Portfolio(dollars in thousands)
    
    Amount
    
    
    PercentMBIA
    
    $
    30,506
    
    
    
    27.1FSA
    
    
    26,730
    
    
    
    23.8FGIC
    
    
    25,855
    
    
    
    23.0AMBAC
    
    
    16,880
    
    
    
    15.0Others (four companies )
    
    
    12,471
    
    
    
    11.1Total
    
    $
    112,442
    
    
    
    100.0
 Realized Gains (Losses) and Impairments
  Liquidity and Capital Resources
  33




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March 31,
    
    
    December 31,
    
    
    March 31,(dollars in millions)
    
    2009
    
    
    2008
    
    
    2008Statutory policyholders surplus
    
    $
    393.3
    
    
    $
    88.0
    
    
    $
    203.4Statutory contingency reserve
    
    
    
    
    
    
    
    
    
    
    228.2Total
    
    $
    393.3
    
    
    $
    88.0
    
    
    $
    431.6Risk-to-capital ratio
    
    
    27.0 to 1
    
    
    
    125.2 to 1
    
    
    
    27.7 to 1
  Update on Critical Accounting Policies and Estimates
 Reserve for Losses and LAE
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Off Balance Sheet Arrangements and Aggregate Contractual Obligations
    Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
  
    
    a deeper or more prolonged recession in the United States coupled with the
tightening of the mortgage credit markets could increase defaults and limit
opportunities for borrowers to cure defaults or for Triad to mitigate losses, which
could have an adverse material impact on our business or results of operations;
    
    the possibility that the Division may take various actions regarding Triad if it
does not operate its business in accordance with its revised
financial and operating plan and the Corrective Orders, including
seeking receivership proceedings, which would effectively eliminate all remaining
stockholder value;
    
    our ability to continue as a going concern;
    
    the ability of the parent company to pay the debt service with funds obtained from
Triad, whether in the form of dividends, payments on the surplus note or otherwise,
will require the approval of the Division, and it is unlikely that such approval will
be sought or, if sought, will be obtained in the foreseeable future;
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
    
    whether we ultimately prevail in arbitration with the Excess-of-Loss reinsurance
treaty, which will have an impact on our financial performance in run-off;
    
    if house prices continue to fall, additional borrowers may default and claims
could be higher than anticipated;
    
    if unemployment rates continue to rise, especially in those areas that have
already experienced significant declines in house prices, defaults and claims could
be higher than anticipated;
    
    further economic downturns in regions where we have larger concentrations of risk
and in markets already distressed could have a particularly adverse effect on our
financial condition and loss development;
    
    the appointment of FHFA as the conservator of both Fannie Mae and Freddie Mac has
resulted in changes in the business practices of the GSEs;
    
    the impact of recently adopted programs affecting modifications and refinancings
of mortgages could materially impact our financial performance in run-off;
    
    our financial condition and performance in run-off could be affected by recently
adopted legislation, such as EESA and HASP;
    
    our financial condition and performance in run-off could be affected by
legislation adopted in the future, if any, impacting the mortgage industry, the GSEs
specifically, or the financial services industry in general;
    
    if the GSEs or our lender customers choose to cancel the insurance on policies
that we insure, our financial performance in run-off could be adversely affected;
    
    a significant decline in interest rates coupled with an increase in available
credit could increase refinancings and decrease the persistency of renewal premiums
and the quality of our insurance in force;
    
    if we have failed to properly underwrite mortgage loans under contract
underwriting service agreements, we may be required to assume the costs of
repurchasing those loans or face other remedies;
    
    any impediment to our ability to rescind coverage on insurance policies, which
would be detrimental to our success in run-off;
    
    our ability to lower operating expenses to the most efficient level while still
providing the ability to mitigate losses effectively during run-off, which will
directly impact our financial performance in run-off; and
    
    if we are unable to satisfy its continued listing requirements, we may be delisted
from The NASDAQ Stock Market.
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Item 3. Quantitative and Qualitative Disclosures about Market Risk
  
 Item 4T. Controls and Procedures
 a)
    
    We carried out an evaluation, under the supervision and with the participation of our
management, including our Principal Executive Officer (PEO) and Principal Financial
Officer (PFO), of the effectiveness of our disclosure controls and procedures pursuant to
Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the Exchange Act).
Based on that evaluation, our management, including our PEO and PFO, concluded, as of the
end of the period covered by this report, that our disclosure controls and procedures were
effective to ensure that information required to be disclosed by us in the reports that we
file or submit under the Exchange Act is (a) accumulated and communicated to our
management, including our PEO and PFO, as appropriate to allow timely decisions regarding
required disclosure, and (b) recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. 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 were no changes to our internal control over financial reporting during the
period ended March 31, 2009 that materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.
 
 PART II. OTHER INFORMATION
 
 Item 1. Legal Proceedings
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Item 1A. Risk Factors
 We
may not continue to realize benefits from rescissions at the levels we have recently experienced,
which could materially and adversely affect our financial condition and results of operations.
  
 Item 6. Exhibits
  40




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SIGNATURE
  TRIAD GUARANTY INC.Date: May 15, 2009/s/ Kenneth S. Dwyer

Kenneth S. DwyerVice President and Chief Accounting Officer(Duly Authorized Officer and Principal Accounting Officer)
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EXHIBIT INDEX
 Exhibit Number
    
    Description10.58
    
    Form of Executive/Key Employee Phantom Stock Award
Agreement, previously filed as Exhibit 10.58 to the
Companys Current Report on Form 8-K, filed on January 29,
2009, and herein incorporated by reference.*31.1
    
    Certification of Principal Executive Officer and Principal
Financial Officer pursuant to Exchange Act Rule 13a-14(a),
as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.32.1
    
    Certification of Principal Executive Officer and Principal
Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
 
 *
    
    Management contract or compensatory arrangement. 42