##### Table of Contents



UNITED STATES SECURITIES AND
    EXCHANGE COMMISSION
 Washington, D.C.
    20549
    Form 10-K
 (Mark One)þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2006oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to   Commission file number 0-22342
    Triad Guaranty Inc.
 (Exact name of registrant as
    specified in its charter)
  DELAWARE

56-1838519(State or other jurisdiction
    of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)101 South Stratford Road
    Winston-Salem, North Carolina(Address of principal
    executive offices)

27104(Zip Code)   Registrants telephone number, including area code:
 (336) 723-1282
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Each Class

Name of Each Exchange on Which RegisteredCommon Stock, par value
    $.01 per share

The NASDAQ Stock Markets LLC
    (NASDAQ Global Select
    Market)   Securities registered pursuant to Section 12(g) of the
    Act:
    None
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
 Large accelerated
    filer o

Accelerated
    filer þ

Non-accelerated
    filer o   Rule 12b-2 o þ
  Rule 13d-3
    Portions of the following documents are incorporated by

Part of this
    Form 10-K
    into which the documentreference into this
    Form 10-K:

is incorporated by referenceTriad Guaranty Inc.
    Proxy Statement for 2007 Annual Meeting
    of Stockholders

Part III




---



##### 



TABLE OF
    CONTENTS
  PagePart IItem 1.


Business


1Item 1A.


Risk
    Factors


19Item 1B.


Unresolved Staff
    Comments


25Item 2.


Properties


26Item 3.


Legal
    Proceedings


26Item 4.


Submission of
    Matters to a Vote of Security Holders


26Part IIItem 5.


Market for the
    Registrants Common Stock, Related Stockholder Matters and
    Issuer Purchases of Equity Securities


27Item 6.


Selected Financial
    Data


28Item 7.


Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


29Item 7A.


Quantitative and
    Qualitative Disclosures about Market Risk


54Item 8.


Financial
    Statements and Supplementary Data


55Item 9.


Changes in and
    Disagreements with Accountants on Accounting and Financial
    Disclosure


55Item 9A.


Controls and
    Procedures


55Item 9B.


Other
    Information


58Part IIIItem 10.


Directors and
    Executive Officers of the Registrant


58Item 11.


Executive
    Compensation


58Item 12.


Security Ownership
    of Certain Beneficial Owners and Management and Related
    Stockholder Matters


58Item 13.


Certain
    Relationships and Related Transactions


58Item 14.


Principal
    Accountant Fees and Services


58Part IVItem 15.


Exhibits and
    Financial Statement Schedules


58Signatures


60Index to
    Consolidated Financial Statements and Financial Statement
    Schedules


62Exhibit 10.43Exhibit 10.44Exhibit 10.45Exhibit 10.46Exhibit 23.1Exhibit 31.1Exhibit 31.2Exhibit 32.1Exhibit 32.2




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##### Table of Contents



PART I  Item 1.
    Business  Overview
  and/or
            Mortgage
    Insurance Products
  Primary
    Insurance
  loan-to-value
 1




---



##### Table of Contents



loan-by-loan
          Modified
    Pool Insurance
   2




---



##### Table of Contents



Traditional
    Pool Insurance
  and/or
  Risk-sharing
    Products
  excess-of-loss excess-of-loss
    excess-of-loss excess-of-loss
  Distribution
    Channels
  loan-by-loan
 3




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##### Table of Contents



Cancellation
    of Insurance
        Customers
           4




---



##### Table of Contents



Percent ofRevenues forthe YearEndedDecember 31Customer

2006


2005Wells Fargo Home Mortgage,
    Inc.


17
%


20%Countrywide Credit Industries, Inc


11
%


14%American Home Mortgage


11
%


less than 10%   Sales and
    Marketing
        Contract
    Underwriting
  ® ® ®
  Competition
    and Market Share
  80-10-10
 5




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##### Table of Contents



Underwriting
    Practices
    Underwriting
    Personnel
     6




---



##### Table of Contents



Risk
    Management Approach
    
    Mortgage Lender.  We review each lenders
    financial statements and management experience before issuing a
    master policy. We also track the historical risk performance,
    including loan level risk characteristics, of all significant
    customers that hold a master policy. This information is
    factored into determining the loan programs we approve for
    various lenders. We assign delegated underwriting authority only
    to lenders with substantial financial resources and established
    records of originating good quality loans.
    Purpose and Type of Loan.  We analyze various
    general characteristics of a loan to evaluate its level of risk
    including: (i) LTV ratio; (ii) type of loan
    instrument; (iii) purpose of the loan; (iv) level of
    documentation; and (v) type of property.     7




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##### Table of Contents




    Individual Loan and Borrower.  Individual
    insurance applications are evaluated based on analysis of the
    borrowers ability and willingness to repay the mortgage
    loan and the characteristics and value of the mortgaged
    property. The analysis of the borrower includes reviewing the
    borrowers housing and total debt ratios as well as the
    borrowers Fair, Isaac and Co., Inc. (FICO)
    credit score, as reported by credit rating agencies. In addition
    to the borrowers willingness and ability to repay the
    loan, we believe that mortgage default risk is affected by a
    variety of other factors, including the borrowers
    employment status. We believe insured mortgage loans made to
    self-employed borrowers have higher risk of claim, all other
    factors being equal, than loans to borrowers employed by third
    parties. Individual insurance applications are reviewed by
    Triads underwriting personnel except for loans originated
    by lenders under delegated underwriting authority or through
    automated underwriting services provided by Fannie Mae and
    Freddie Mac. In the case of delegated underwriting, we monitor
    compliance with program parameters through periodic audits of
    delegated business. Through the automated underwriting services
    provided by Fannie Mae and Freddie Mac, lenders are able to
    obtain approval for mortgage guaranty insurance with any
    participating mortgage insurer. Triad works with both
    enterprises in offering insurance services through their systems
    while monitoring the risk quality of loans insured through such
    systems.
    Geographic Selection of Risk.  We place
    emphasis on the condition of the regional housing markets in
    determining marketing and underwriting policies. Using both
    internal and external data, our risk management department
    continually monitors the economic conditions in our active and
    potential markets. On structured bulk transactions, we may
    choose not to insure new loans in geographic areas in which we
    have a heavy concentration or that we believe have a higher risk
    of loss.
    Risk Dispersion.  In the early years of the
    Company, only certain high quality loans with limited risk were
    accepted. As we developed expertise beyond that limited spectrum
    on the risk curve and with the advent of delegated underwriting,
    we gradually expanded the breadth of risk we view as acceptable.
    Further, the marketplace has changed and many lenders are
    promoting Alt-A loan programs, ARMs and other programs with
    nonconforming loan characteristics. We define Alt-A as
    individual loans having FICO scores greater than 619 that have
    been underwritten with reduced or no documentation. As
    previously mentioned, we believe these types of loans carry a
    higher risk and have a correspondingly higher premium rate than
    fully documented, conforming loans. Products such as Alt-A loans
    and potential negative amortizing ARMs continue to grow as a
    percentage of our Primary insurance in force.  Underwriting
    Process for Our Flow Distribution Channel
   8




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##### Table of Contents



debt-to-income
  agreed-upon
      Underwriting
    Process for Our Structured Bulk Distribution
    Channel
  loan-by-loan ®
 9




---



##### Table of Contents



Other
    Risk Management
      Financial
    Strength Rating
          Reinsurance
   10




---



##### Table of Contents



Risk-sharing
        Defaults
    and Claims
  Defaults
    Claims
     11




---



##### Table of Contents



deed-in-lieu
    Loss
    Mitigation
    Loss
    Reserves
   12




---



##### Table of Contents



Direct
    Risk in Force
      Geographic
    Dispersion
    Top Ten States




Top Ten MSAsCalifornia


13.6
%

Chicago, IL


3.9
%Florida


11.1


Phoenix/Mesa, AZ


3.8Texas


6.6


Atlanta, GA


2.4Arizona


5.0


Los Angeles/Long Beach, CA


2.4Illinois


4.3


Las Vegas, NV


2.3North Carolina


3.8


Riverside/San Bernardino, CA


2.2Georgia


3.7


Houston, TX


1.8Colorado


3.3


Denver, CO


1.7Virginia


3.1


Arlington/Fredericksburg, VA


1.6New Jersey


3.0


Miami, FL


1.5Total


57.5
%

Total


23.6
%       Investment
    Portfolio
   13




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##### Table of Contents



Regulation
  Direct
    Regulation
    and/or
       14




---



##### Table of Contents



risk-to-capital risk-to-capital 12.5-to-1.
         15




---



##### Table of Contents



fixed-rate
       16




---



##### Table of Contents



Indirect
    Regulation
         17




---



##### Table of Contents



Web Site
    Access to Company Reports
  Form 10-K, Form 10-Q, Form 8-K,
  Employees
    Executive
    Officers
    Name

Position

AgeMark K. Tonnesen

President, Chief Executive
    Officer, and Director of the Company and Triad


55Kenneth C. Foster

Executive Vice President,
    Structured Transactions and Business Development


58Steven J. Haferman

Senior Vice President, Risk
    Management and Information Technology and Director of Triad


45Kenneth W. Jones

Senior Vice President and Chief
    Financial Officer of the Company and Triad and Director of Triad


49Earl F. Wall

Senior Vice President, Secretary,
    and General Counsel of the Company and Triad and Director of
    Triad


49   Mark K. Tonnesen
 18




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##### Table of Contents



Kenneth C. Foster
  Stephen J. Haferman
  Kenneth W. Jones
  Earl F. Wall
    Item 1A.
    Risk
    Factors    If deteriorating economic conditions alter the frequency and
    severity patterns utilized in our estimates for reserves for
    losses, we may be required to take additional charges to
    earnings.
     19




---



##### Table of Contents



Since, consistent with industry practice, we generally
    provide reserves only for loans in default that have been
    reported to us and an estimate of loans in default not yet
    reported to us, any increase in the level of delinquent loans
    reported would require an increase to reserves and a charge to
    earnings.
    Because our business is concentrated among relatively few
    major lenders, our revenues and net income could decline if we
    lose a significant customer.
    If housing values fail to appreciate or decline on a more
    significant and larger geographic basis, we may incur a higher
    level of losses from paid claims and also be required to
    increase reserves.
   20




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##### Table of Contents



Because a growing portion our business is sensitive to
    interest rates, a large increase in rates would cause higher
    monthly mortgage payments for borrowers that could potentially
    lead to a greater number of defaults, which would adversely
    impact our business.
      The premiums we charge for mortgage insurance on non-prime
    loans, ARMs and Alt-A loans may not be adequate to compensate
    for future losses from these products.
    A growing portion of our insurance in force consists of loans
    with high
    loan-to-value
    ratios or loans that are non-prime or both, which could result
    in more and larger claims than loans with lower
    loan-to-value
    ratios or prime loans.
     21




---



##### Table of Contents



A downgrade or potential downgrade of the financial strength
    ratings assigned to our primary insurance subsidiary could
    weaken our competitive position.
    Changes in the business practices or legislation relating to
    Fannie Mae and Freddie Mac could significantly impact our
    business.
      Legislation and regulatory changes, including changes
    impacting the GSEs, could significantly affect our business and
    could reduce demand for private mortgage insurance.
     22




---



##### Table of Contents



Our revenues and profits could decline if we lose market
    share as a result of industry competition or if our competitive
    position suffers as a result of our inability to introduce and
    successfully market new products and programs.
      If mortgage lenders and investors select alternatives to
    private mortgage insurance, the amount of insurance that we
    write could decline, which could reduce our revenues and
    profits.
    
    mortgage lenders structuring mortgage originations to avoid
    private mortgage insurance utilizing
    80-10-10
    structures; over the past several years, the volume of these
    loans, or variations of them, have increased as alternatives to
    loans requiring mortgage insurance;
    investors using credit enhancements as a partial or complete
    substitute for private mortgage insurance;
    lenders and investors holding mortgages in their portfolios and
    self-insuring;
    member institutions providing credit enhancement on loans sold
    to a Federal Home Loan Bank, or FHLB, which do not have the
    same requirements for mortgage insurance as Fannie Mae and
    Freddie Mac.  Changes in regulatory requirements could impact captive
    mortgage insurance arrangements for all industry
    participants.
   23




---



##### Table of Contents



Since we generally cannot cancel mortgage insurance policies
    or adjust renewal premiums, unanticipated claims could cause our
    financial performance to suffer.
    Our loss experience is likely to increase as our policies
    continue to age.
    Our revenues and DAC amortization depend on the renewal of
    policies that may terminate or fail to renew.
    Our delegated underwriting program may subject our mortgage
    insurance business to unanticipated claims.
    Geographic concentration of our risk in force could increase
    claims and losses and harm our financial performance.
   24




---



##### Table of Contents



If we fail to properly underwrite mortgage loans when we
    provide contract underwriting services, we may be required to
    provide monetary and other remedies to the customer.
    We have committed to an operational presence in Canada during
    2007. Our ability to successfully organize, develop successful
    administrative systems and gain meaningful market share in
    Canada is dependent on many factors over which we have no
    control.
      Item 1B.
    Unresolved
    Staff Comments  Form 10-K
  
    The calculation of loss reserves related to defaults incurred
    but not reported,
    Additional sensitivity analysis around the frequency and
    severity factors utilized in our loss reserve projections as
    described in the Critical Accounting Policies,
    Additional disclosures related to the subsequent loss reserve
    deficiency reported in 2005 and 2004 based upon the reported
    reserves at December 31, 2004 and 2003.   25




---



##### Table of Contents



Item 2.
    Properties        Item 3.
    Legal
    Proceedings    Broessel v. Triad
  Item 4.
    Submission
    of Matters to a Vote of Security Holders   26




---



##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity and Related Stockholder
    Matters and Issuer Purchases of Equity Securities    ®
  2006


2005High


Low


High


LowFirst Quarter

$
46.95


$
42.00


$
59.50


$
50.20Second Quarter

$
56.07


$
45.77


$
55.04


$
49.50Third Quarter

$
52.88


$
45.69


$
53.88


$
37.74Fourth Quarter

$
57.31


$
49.11


$
45.85


$
35.75              27




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##### Table of Contents



Item 6.
    Selected
    Financial Data  Year Ended December 312006


2005


2004


2003


2002(Dollars in thousands, except per share amounts)Income Statement Data(for period ended):Premiums written:Direct

$
256,706


$
207,260


$
176,696


$
154,046


$
124,214Ceded


(46,140
)


(40,644
)


(35,365
)


(27,310
)


(18,345
)$
210,566


$
166,616


$
141,331


$
126,736


$
105,869Earned premiums

$
210,856


$
168,997


$
140,992


$
119,732


$
105,067Net investment income


26,696



22,998



19,754



17,082



16,099Net realized gains (losses)


1,584



36



504



3,029



(2,519
)Other income


8



15



16



24



72Total revenues


239,144



192,046



161,266



139,867



118,719Net losses and loss adjustment
    expenses


94,227



66,855



35,864



23,833



14,063Interest expense on debt


2,774



2,773



2,772



2,772



2,771Amortization of deferred
    acquisition cost


16,268



14,902



14,256



18,112



13,742Other operating expenses (net of
    acquisition cost deferred)


35,556



29,610



26,483



22,776



22,900Income before income taxes


90,319



77,906



81,891



72,374



65,243Income taxes


24,684



21,093



23,474



21,283



20,140Net income

$
65,635


$
56,813


$
58,417


$
51,091


$
45,103Basic earnings per share

$
4.44


$
3.87


$
4.04


$
3.57


$
3.21Diluted earnings per share

$
4.40


$
3.84


$
3.98


$
3.52


$
3.15Weighted average common and common
    share equivalents outstandingBasic


14,769,859



14,691,478



14,458,453



14,322,216



14,060,420Diluted


14,912,519



14,808,387



14,681,228



14,509,538



14,331,581Balance Sheet Data(at year end):Total assets

$
895,631


$
767,503


$
672,035


$
575,579


$
482,886Total invested assets

$
607,312


$
547,019


$
476,913


$
399,571


$
326,537Reserve for losses and loss
    adjustment expenses

$
84,352


$
51,074


$
34,042


$
27,186


$
21,360Unearned premiums

$
13,193


$
13,494


$
15,942


$
15,630


$
8,539Long-term debt

$
34,510


$
34,501


$
34,493


$
34,486


$
34,479Stockholders equity

$
570,224


$
499,191


$
437,343


$
369,930


$
309,407Statutory
    Ratios(1):Loss ratio


44.7
%


39.6
%


25.4
%


19.9
%


13.4
%Expense ratio


23.4
%


25.2
%


29.4
%


33.0
%


38.0
%Combined ratio


68.1
%


64.8
%


54.8
%


52.9
%


51.4
%GAAP Ratios:Loss ratio


44.7
%


39.6
%


25.4
%


19.9
%


13.4
%Expense ratio


24.6
%


26.7
%


28.8
%


32.3
%


34.6
%Combined ratio


69.3
%


66.3
%


54.2
%


52.2
%


48.0
%Other Statutory Data(dollars in millions)(1):Direct insurance in force

$
56,828.4


$
44,407.0


$
36,827.0


$
31,747.8


$
25,379.1Direct risk in force (gross)

$
9,440.5


$
8,016.3


$
7,627.0


$
7,024.0


$
5,790.9Risk-to-capital


12.5:1



12.6:1



14.0:1



15.3:1



15.5:1     (1)
    
    Based on statutory accounting practices and derived from
    combined statutory financial statements of Triad. 28




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations      Critical
    Accounting Policies and Estimates
    Reserve
    for Losses and Loss Adjustment Expenses
     29




---



##### Table of Contents



Sensitivity AnalysisEffect on Pretax Income fromChanges in AssumptionsDecrease in Factors


Increase in FactorsResulting in an


Resulting in aIncrease in Pretax


(Decrease) inIncome


Pretax Income(In thousands)10% Increase (Decrease) in the
    Frequency Factors Utilized in the Loss Reserve Model

$
7,045


$
(7,145
)10% Increase (Decrease) in the
    Severity Factors Utilized in the Loss Reserve Model

$
8,325


$
(8,325
)10% Increase (Decrease) in Both
    the Frequency and Severity Factors Utilized in the Loss Reserve
    Model

$
14,665


$
(16,185
)       Investments
    other-than-temporarily other-than-temporary
 30




---



##### Table of Contents



Deferred
    Policy Acquisition Costs
    Overview
  loan-by-loan
       31




---



##### Table of Contents



Consolidated
    Results of Operations
    % Change


% Change2006


2005


2004


2006 vs. 2005


2005 vs. 2004(In thousands, except percentages and per share
    information)Earned premiums

$
210,856


$
168,997


$
140,992



24.8
%


19.9
%Net losses and loss adjustment
    expenses


94,227



66,855



35,864



40.9



86.4Other operating expenses


35,556



29,610



26,483



20.1



11.8Net income


65,635



56,813



58,417



15.5



(2.7
)Diluted earnings per share

$
4.40


$
3.84


$
3.98



14.6



(3.5
)         other-than-temporarily
     32




---



##### Table of Contents



Production
    and In Force
    % Change


% Change2006


2005


2004


2006 vs. 2005


2005 vs. 2004(In millions, except percentages)Primary insurance written

$
12,088


$
10,488


$
10,709



15.3
%


(2.1
)%Modified Pool insurance written


12,672



10,681



6,463



18.6



65.3Total insurance written

$
24,760


$
21,169


$
17,172



17.0
%


23.3
%       80-10-10s,
      2006


2005


2004Flow channel


6.3
%


5.7
%


4.8
%Structured bulk channel


14.5
%


11.5
%


11.3
%Total


9.1
%


7.5
%


6.0
%  33




---



##### Table of Contents



Credit Quality2006


2005


2004Prime


68.4
%


76.1
%


81.7
%Alt-A


29.2



18.3



13.6A Minus


2.1



4.3



4.0Sub Prime


0.3



1.3



0.7Total


100.0
%


100.0
%


100.0
%     Loan Type2006


2005


2004Fixed


58.1
%


62.9
%


65.6
%ARM (positive amortization)


14.3



25.0



33.1ARM (potential negative
    amortization)


27.6



12.1



1.3Total


100.0
%


100.0
%


100.0
%     Loan to Value2006


2005


2004LTV
    ratio:Greater than 95%


15.5
%


12.4
%


12.7
%90.01% to 95.00%


23.9



35.5



34.990.00% and below


60.6



52.1



52.4Total


100.0
%


100.0
%


100.0
%    34




---



##### Table of Contents



% Change


% Change2006


2005


2004


2006 vs. 2005


2005 vs. 2004(In millions, except percentages)Primary insurance

$
34,109


$
29,792


$
28,964



14.5
%


2.9
%Modified Pool insurance


22,719



14,615



7,863



55.4



85.9Total insurance

$
56,828


$
44,407


$
36,827



28.0
%


20.6
%        35




---



##### Table of Contents



2006


2005


2004Primary insurance in force


15.4
%


9.9
%


7.3
%Modified Pool insurance in force


70.7
%


66.9
%


56.2
%Total insurance in force


37.5
%


28.6
%


17.7
%     
    A decline in the percentage of business with prime credit quality
    An increase in the percentage of Alt-A business
    An increase in Primary LTV greater than 95%
    An increase in potential negative amortization loan types
    An increase in condominium property types
    A decline in primary residence occupancy status   36




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##### Table of Contents



Risk in
    Force(1)
  Primary


Modified Pool2006


2005


2004


2006


2005


2004(In millions, except percentages)Direct Risk in Force

$
8,652


$
7,471


$
7,158


$
788


$
545


$
374Net Risk in Force

$
7,824


$
6,767


$
6,587


$
788


$
545


$
374Credit quality:Prime


80.2
%


84.2
%


86.3
%


30.5
%


32.8
%


42.2
%Alt-A


15.7



10.8



8.2



68.5



65.9



55.3A Minus


3.5



4.2



4.5



0.8



1.1



2.1Sub Prime


0.6



0.8



1.0



0.2



0.2



0.4Total


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%LTV:95.01% and above


16.6
%


14.3
%


12.6
%



%



%



%90.01% to 95.00%


37.1



41.9



42.2







0.5



0.590.00% and below


46.3



43.8



45.2



100.0



99.5



99.5Total


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%Loan Type:Fixed


70.1
%


73.7
%


76.4
%


31.0
%


41.3
%


59.9
%ARM (positive amortization)


18.3



22.2



23.1



55.6



58.7



40.1ARM (potential negative
    amortization)


11.6



4.1



0.5



13.4







Total


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%Mortgage Term:15 years and under


2.6
%


4.2
%


6.0
%


2.2
%


3.7
%


6.1
%Over 15 years


97.4



95.8



94.0



97.8



96.3



93.9Total


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%Property Type:Condominium


9.6
%


7.8
%


6.9
%


8.0
%


5.9
%


1.3
%Other (principally single-family
    detached)


90.4



92.2



93.1



92.0



94.1



98.7Total


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%Occupancy Status:Primary residence


89.4
%


91.9
%


93.5
%


73.7
%


74.2
%


74.1
%Secondary home


7.4



4.6



3.3



6.2



5.7



5.2Non-owner occupied


3.2



3.5



3.2



20.1



20.1



20.7Total


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%Mortgage Amount:$200,000 or less


58.4
%


67.7
%


71.2
%


38.4
%


46.4
%


50.4
%Over $200,000


41.6



32.3



28.8



61.6



53.6



49.6Total


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%


100.0
%     (1)
    
    Percentages represent distribution of direct risk in force on a
    per policy basis and does not account for applicable stop-loss
    amounts or deductibles. 37




---



##### Table of Contents



2006


2005


2004Direct Risk





Direct Risk





Direct RiskCertificate Year

in Force


Percent


in Force


Percent


in Force


Percent(In millions, except percentages)2000 and before

$
196.6



2.1
%

$
262.2



3.3
%

$
383.2



5.1
%2001


211.1



2.2



289.4



3.6



488.4



6.52002


503.9



5.3



687.0



8.6



1,088.5



14.42003


1,598.3



16.9



2,111.7



26.3



2,991.2



39.72004


1,589.8



16.9



2,077.7



25.9



2,580.6



34.32005


2,255.2



23.9



2,588.3



32.3







2006


3,085.5



32.7















Total

$
9,440.4



100.0
%

$
8,016.3



100.0
%

$
7,531.9



100.0
%     2006


2005


2004Primary flow channel insurance in
    force


61.0
%


59.0
%


56.6
%Total insurance in force


35.5
%


39.0
%


43.4
%     lender-by-lender
 38




---



##### Table of Contents



Revenues
    % Change


% Change2006


2005


2004


2006 vs. 2005


2005 vs. 2004(In thousands, except percentages)Direct premium written

$
256,706


$
207,260


$
176,696



23.9
%


17.3
%Ceded premium written


(46,140
)


(40,644
)


(35,365
)


13.5



14.9Net premium written


210,566



166,616



141,331



26.4



17.9Change in unearned premiums


290



2,381



(339
)


(87.8
)


802.4Earned premiums

$
210,856


$
168,997


$
140,992



24.8
%


19.9
%Net investment income

$
26,696


$
22,998


$
19,754



16.1
%


16.4
%Total revenues

$
239,144


$
192,046


$
161,266



24.5
%


19.1
%       2006


2005


2004Premium cede rate (ceded premiums
    written as a percentage of direct premiums written)


18.0
%


19.6
%


20.0
%Captive reinsurance premium cede
    rate (ceded premiums written under captive reinsurance
    arrangements as a percentage of direct premiums written)


17.2
%


18.1
%


18.0
%Average captive premium cede rate
    (ceded premiums written under captive reinsurance arrangements
    as a percentage of direct premiums written under captive
    reinsurance arrangements)


36.6
%


36.7
%


36.9
%     2006


2005


2004Primary flow insurance written


50.4
%


54.1
%


54.4
%Total insurance written


22.3
%


26.8
%


33.9
%    39




---



##### Table of Contents



other-than-temporarily other-than-temporarily
  Losses
    and Expenses
  year-to-year
  % Change


% Change2006


2005


2004


2006 vs. 2005


2005 vs. 2004(In thousands, except percentages)Net losses and loss adjustment
    expenses

$
94,227


$
66,855


$
35,864



40.9
%


86.4
%Amortization of deferred policy
    acquisition costs

$
16,268


$
14,902


$
14,256



9.2
%


4.5
%Other operating expenses (net of
    acquisition costs deferred)

$
35,556


$
29,610


$
26,483



20.1
%


11.8
%Loss ratio


44.7
%


39.6
%


25.4
%Expense ratio


24.6
%


26.7
%


28.8
%Combined ratio


69.3
%


66.3
%


54.2
%      40




---



##### Table of Contents



% Change


% Change2006


2005


2004


2006 vs. 2005


2005 vs. 2004(In thousands, except percentages)Paid claims:Primary insurance

$
54,923


$
44,369


$
25,695



23.8
%


72.7
%Modified Pool insurance


4,104



4,457



2,640



(7.9
)


68.8Total

$
59,027


$
48,826


$
28,335



20.9
%


72.3
%Number of claims paid:Primary insurance


2,073



1,671



1,104



24.1



51.4Modified Pool insurance


204



217



186



(6.0
)


16.7Total


2,277



1,888



1,290



20.6



46.4Average severity of claims paid:Primary insurance

$
26.5


$
26.6


$
23.3



(0.4
)%


14.2
%Modified Pool insurance

$
20.1


$
20.5


$
14.2



(2.0
)%


44.4
%Total

$
25.9


$
25.9


$
22.0



0.0
%


17.7
%       Three Months EndedSeptember 30,


June 30,


March 31,December 31, 2006


2006


2006


2006(In thousands)Average severity:Primary insurance

$
28.1


$
25.8


$
25.8


$
26.3Modified Pool insurance

$
26.2


$
18.2


$
19.4


$
16.4Total

$
27.9


$
25.3


$
25.3


$
25.1    41




---



##### Table of Contents



Cumulative Paid Loss Ratios as of December 31Certificate Year

2006


2005


20041996


14.5
%


13.9
%


13.6
%1997


10.0



9.9



9.61998


6.5



6.4



6.01999


9.7



9.0



7.82000


34.7



32.0



27.82001


29.0



23.7



15.92002


29.2



22.4



10.22003


13.0



7.8



1.22004


10.2



2.0



2005


4.2







2006


0.1







    42




---



##### Table of Contents



% Change


% Change2006


2005


2004


2006 vs. 2005


2005 vs. 2004(In thousands, except percentages)Primary insurance:Reserves for reported defaults

$
65,417


$
44,198


$
28,408



48.0
%


55.6
%Reserves for defaults incurred but
    not reported


5,676



4,536



3,493



25.1



29.9Total Primary insurance


71,093



48,734



31,901



45.9



52.8Modified Pool insurance:Reserves for reported defaults


11,477



1,836



1,809



525.1



1.5Reserves for defaults incurred but
    not reported


773



403



235



91.8



71.5Total Modified Pool insurance


12,250



2,239



2,044



447.1



9.5Reserve for loss adjustment
    expenses


1,009



101



97



899.0



4.1Total reserve for losses and loss
    adjustment expenses

$
84,352


$
51,074


$
34,042



65.2
%


50.0
%Net increase in reserve for losses
    and loss adjustment expenses

$
33,278


$
17,032


$
6,856



95.4
%


148.4
%          43




---



##### Table of Contents



2006


2005


2004Total business:Number of insured loans in force


338,086



302,488



266,574Number of loans in default


8,566



7,753



5,922With deductibles


1,898



1,389



634Without deductibles


6,668



6,364



5,288Percentage of loans in default
    (default rate)


2.53
%


2.56
%


2.22
%Percentage of loans in default
    excluding deductibles*


2.41
%


2.48
%


2.25
%Primary insurance:Number of insured loans in force


225,531



217,397



218,011Number of loans in default


5,565



5,617



4,430Percentage of loans in default


2.47
%


2.58
%


2.03
%Modified Pool insurance:Number of insured loans in force


112,555



85,091



48,563Number of loans in default


3,001



2,136



1,492With deductibles


1,898



1,389



634Without deductibles


1,103



747



858Percentage of loans in default


2.67
%


2.51
%


3.07
%Percentage of loans in default
    excluding deductibles*


2.16
%


1.91
%


5.15
%Primary Alt-A business**:Number of insured loans in force


22,385



16,378



12,714Number of loans in default


814



590



442Percentage of loans in default


3.64
%


3.60
%


3.48
%     *
    
    Excludes loans written as part of structured bulk transactions
    with deductibles and defaults on these loans.**
    
    Included in Primary insurance amounts above.   44




---



##### Table of Contents



Significant
    Customers
   45




---



##### Table of Contents



Financial
    Position
    Deferred
    Policy Acquisition Costs
       46




---



##### Table of Contents



DAC Asset2006


2005


2004Balance  beginning of
    year

$
33,684


$
32,453


$
29,363Costs capitalized


17,727



16,133



17,346Amortization  normal


(15,990
)


(13,191
)


(12,194
)Amortization  dynamic
    adjustment


(278
)


(1,711
)


(2,062
)Total amortization


(16,268
)


(14,902
)


(14,256
)Balance  end of year

$
35,143


$
33,684


$
32,453Annual Persistency


76.8
%


68.7
%


67.6
%     Prepaid
    Federal Income Taxes and Deferred Income Taxes
      Investment
    Portfolio
  Portfolio
    Description
   47




---



##### Table of Contents



December 31,


December 31,2006


2005Amount


Percent


Amount


Percent(In thousands, except percentages)Fixed maturity
    securities:U.S. government obligations

$
11,842



2.0
%

$
12,124



2.2
%State and municipal bonds


558,131



91.9



500,027



91.4Corporate bonds


16,572



2.7



21,855



4.0Mortgage-backed bonds


49







58



Total fixed maturities


586,594



96.6



534,064



97.6Equity securities


10,417



1.7



8,159



1.5Total
    available-for-sale
    securities


597,011



98.3



542,223



99.1Other investments


5,000



0.8







Short-term
    investments


5,301



0.9



4,796



0.9$
607,312



100.0
%

$
547,019



100.0
%       Carrying


% of TotalName of Creditor

Value


Invested Assets(In thousands, except percentages)Atlanta, Georgia Airport

$
6,824



1.12
%State of Connecticut


6,653



1.10
%State of Pennsylvania


6,110



1.01
%State of Hawaii


5,406



0.89
%Federal National Mortgage
    Association


5,388



0.89
%State of Utah


5,263



0.87
%Structured Credit Holdings Plc
    (common stock)


5,000



0.82
%Port of Seattle, Washington


4,592



0.76
%City of Chicago, Illinois


4,562



0.75
%Cook County, Illinois


4,258



0.70
%    48




---



##### Table of Contents



2006


2005


2004(In thousands, except percentages)Average investments at cost or
    amortized cost

$
559,378


$
493,256


$
419,467Pre-tax net investment income

$
26,696


$
22,998


$
19,754Effective pre-tax yield


4.8
%


4.7
%


4.7
%Tax-equivalent
    yield-to-maturity


6.7
%


6.8
%


7.0
%Pre-tax realized investment gains

$
1,584


$
36


$
504   yield-to-maturity
  Unrealized
    Gains and Losses
    Cost or


Gross


GrossAmortized


Unrealized


Unrealized


FairCost


Gains


Losses


Value(In thousands)Fixed maturity
    securities:U.S. government obligations

$
12,119


$
4


$
(281
)

$
11,842State and municipal bonds


541,389



17,306



(564
)


558,131Corporate bonds


15,438



1,138



(4
)


16,572Mortgage-backed bonds


46



3







49Subtotal, fixed maturities


568,992



18,451



(849
)


586,594Equity securities


9,530



954



(67
)


10,417Total securities

$
578,522


$
19,405


$
(916
)

$
597,011    49




---



##### Table of Contents



Credit
    Risk
    December 31,


December 31,2006


2005Amount


Percent


Amount


Percent(In thousands, except percentages)Fixed Maturities:U.S. treasury and agency bonds

$
11,842



2.0
%

$
12,124



2.3
%AAA


464,042



79.1



420,489



78.7AA


72,051



12.3



52,812



9.9A


25,054



4.3



30,176



5.7BBB


10,782



1.9



9,780



1.8BB


50







781



0.1CC and lower


279











Not rated


2,494



0.4



7,902



1.5Total fixed maturities

$
586,594



100.0
%

$
534,064



100.0
%Equities:Preferred stocks:AA

$
1,708



16.4
%

$
1,709



20.9
%A


2,035



19.5



1,559



19.1BBB


1,132



10.9



1,125



13.8Not rated










490



6.04,875



46.8



4,883



59.8Common stocks


5,542



53.2



3,276



40.2Total equities

$
10,417



100.0
%

$
8,159



100.0
%     
    Length of time the fair value was below amortized cost
    Industry factors or conditions related to a geographic area
    negatively affecting the security
    Downgrades by a rating agency
    Past due interest or principal payments or other violation of
    covenants
    Deterioration of the overall financial condition of the specific
    issuer  other-than-temporary other-than-temporary
 50




---



##### Table of Contents



other-than-temporary other-than-temporary
    other-than-temporary
  Realized
    Losses and Impairments
  other-than-temporary other-than-temporary
  Liquidity
    and Capital Resources
             51




---



##### Table of Contents



paid-in-capital
    2006


2005Statutory policyholders
    surplus

$
168.5


$
131.6Statutory contingency reserve


521.8



447.8Total

$
690.3


$
579.4     risk-to-capital 25-to-1. risk-to-capital 12.5-to-1 12.6-to-1 risk-to-capital
       52




---



##### Table of Contents



Off
    Balance Sheet Arrangements and Aggregate Contractual
    Obligations
        Payments Due By PeriodLess Than








More ThanContractual Obligations

Total


1 Year


1-3 years


3-5 years


5 Years(In thousands)Long-term debt

$
35,000


$



$



$



$
35,000Operating leases


10,378



2,267



3,797



2,937



1,377Other long-term liabilities
    reflected on the Registrants balance sheet under GAAP


84,352



67,815



16,537







Total

$
129,730


$
70,082


$
20,334


$
2,937


$
36,377     Market
    Risk Exposure
    Safe
    Harbor Statement under the Private Securities Litigation Reform
    Act of 1995
    
    interest rates may increase or decrease from their current
    levels;
    housing prices may increase or decrease from their current
    levels;
    housing transactions requiring mortgage insurance may decrease
    for many reasons including changes in interest rates or economic
    conditions or alternative credit enhancement products;
    our market share may change as a result of changes in
    underwriting criteria or competitive products or rates; 53




---



##### Table of Contents




    the amount of insurance written could be adversely affected by
    changes in federal housing legislation, including changes in the
    Federal Housing Administration loan limits and coverage
    requirements of Freddie Mac and Fannie Mae
    (Government-Sponsored Enterprises);
    our financial condition and competitive position could be
    affected by legislation or regulation impacting the mortgage
    guaranty industry or the Government-Sponsored Enterprises,
    specifically, and the financial services industry in general;
    rating agencies may revise methodologies for determining our
    financial strength ratings and may revise or withdraw the
    assigned ratings at any time;
    decreases in persistency, which are affected by loan
    refinancings in periods of low interest rates, may have an
    adverse effect on earnings;
    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, mix
    and pricing of our products and services and our competitors;
    if we fail to properly underwrite mortgage loans under contract
    underwriting service agreements, we may be required to assume
    the costs of repurchasing those loans;
    with consolidation occurring among mortgage lenders and our
    concentration of insurance in force generated through
    relationships with significant lender customers, our margins may
    be compressed and the loss of a significant customer or a change
    in their business practices affecting mortgage insurance may
    have an adverse effect on our earnings;
    our performance may be impacted by changes in the performance of
    the financial markets and general economic conditions;
    economic downturns in regions where our risk is more
    concentrated could have a particularly adverse effect on our
    financial condition and loss development;
    revisions in risk-based capital rules by the OFHEO for Fannie
    Mae and Freddie Mac could severely limit our ability to compete
    against various types of credit protection counterparties,
    including AAA rated private mortgage insurers;
    changes in the eligibility guidelines of Fannie Mae or Freddie
    Mac could have an adverse effect on the Company;
    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;
    our financial and competitive position could be affected by
    regulatory activity requiring changes to mortgage industry
    business practices, such as captive reinsurance;
    failure to gain significant market share in Canada.    Item 7A.
    Qualitative
    and Quantitative Disclosures about Market Risks   54




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A.
    Controls
    and Procedures  Conclusions
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
  Rules 13a-15(e) 15d-15(e)
  Form 10-K
  Changes
    in Internal Control over Financial Reporting
    Managements
    Annual Report on Internal Control over Financial
    Reporting
  Rules 13a-15(f) 15d-15(f)
 55




---



##### Table of Contents



56




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm on Internal
    Control
    Over Financial Reporting
  The Board
    of Directors and Stockholders of Triad Guaranty Inc.
  Managements Annual Report on Internal
    Control over Financial Reporting
            
    57




---



##### Table of Contents



Item 9B.
    Other
    Information   PART III  Item 10.
    Directors
    and Executive Officers of the Registrant      http://www.triadguaranty.com
  Item 11.
    Executive
    Compensation    Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    Item 13.
    Certain
    Relationships and Related Transactions    Item 14.
    Principal
    Accountant Fees and Services   PART IV  Item 15.
    Exhibits
    and Financial Statement Schedules      Form 8-K Form 10-K
     58




---



##### Table of Contents



59




---



##### Table of Contents



SIGNATURES    By:
    /s/  Mark
    K. Tonnesen   President and Chief Executive Officer
    Signature

Title/s/  William
    T.
    Ratliff, IIIWilliam
    T. Ratliff, III

Chairman of the Board/s/  Mark
    K. TonnesenMark
    K. Tonnesen

President, Chief Executive
    Officer, and Director/s/  Kenneth
    W. JonesKenneth
    W. Jones

Senior Vice President, Chief
    Financial Officer/s/  Kenneth
    S. DwyerKenneth
    S. Dwyer

Vice President, and Chief
    Accounting Officer/s/  David
    W. WhitehurstDavid
    W. Whitehurst

Director/s/  Robert
    T. DavidRobert
    T. David

Director/s/  Michael
    A. F. RobertsMichael
    A. F. Roberts

Director/s/  Richard
    S. SwansonRichard
    S. Swanson

Director/s/  Glenn
    T.
    Austin, Jr.Glenn
    T. Austin, Jr.

Director/s/  H.
    Lee DurhamH.
    Lee Durham

Director  60




---



##### Table of Contents



ANNUAL
    REPORT ON FORM 10-K
  ITEM 8,
    ITEM 15(a)(1) and (2), (3), (c), and (d)
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
  INDEX TO
    EXHIBITS
  CONSOLIDATED
    FINANCIAL STATEMENTS
  FINANCIAL
    STATEMENT SCHEDULES
  CERTAIN
    EXHIBITS
  YEAR
    ENDED DECEMBER 31, 2006
  TRIAD
    GUARANTY INC.
  WINSTON-SALEM,
    NORTH CAROLINA
 61




---



##### Table of Contents



INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS
    AND FINANCIAL STATEMENT SCHEDULES  (Item 15(a) 1 and 2)
  PageConsolidated Financial
    StatementsReport of
    Independent Registered Public Accounting Firm


65Consolidated
    Balance Sheets at December 31, 2006 and 2005


66Consolidated
    Statements of Income for each of the three years in the period
    ended December 31, 2006


67Consolidated
    Statements of Changes in Stockholders Equity for each of
    the three years in the period ended December 31,
    2006


68Consolidated
    Statements of Cash Flows for each of the three years in the
    period ended December 31, 2006


69Notes to
    Consolidated Financial Statements


70Financial Statement
    SchedulesSchedules at and for each of the
    three years in the period ended December 31, 2006Schedule
    I  Summary of Investments  Other Than
    Investments in Related Parties


87Schedule II 
    Condensed Financial Information of Registrant


88Schedule
    IV  Reinsurance


93    62




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##### Table of Contents



INDEX TO
    EXHIBITS
    (Item 15(a) 3)
  Exhibit Number

Description of Exhibit3
.1

Certificate of Incorporation of
    the Registrant, as amended (5) (Exhibit 3.1)3
.2

By-Laws of the Registrant as
    amended March 21, 2003 (10)(Exhibit 3.2(c))4
.1

Form of Common Stock certificate
    (1) (Exhibit 4(a))4
.2

Indenture Between Triad Guaranty
    Inc. and Bankers Trust Co. (6) (Exhibit 4.2)10
.6

Registration Agreement among the
    Registrant, Collateral Investment Corp. and Collateral Mortgage,
    Ltd. (2) (Exhibit 10.6)10
.16

Economic Value Added Incentive
    Bonus Program (Senior Management) (4) (Exhibit 10.16)10
.21

Excess of Loss Reinsurance
    Agreement between Triad Guaranty Insurance Corporation, Capital
    Mortgage Reinsurance Company, and Federal Insurance Company. (7)
    (Exhibit 10.21)10
.22

Excess of Loss Reinsurance
    Agreement between Triad Guaranty Insurance Corporation and Ace
    Capital Mortgage Reinsurance Company. (8) (Exhibit 10.22)10
.23

Employment Agreement between the
    Registrant and Earl F. Wall (3)(9) (Exhibit 10.23)10
.26

Employment Agreement between the
    Registrant and Kenneth C. Foster (3)(10) (Exhibit 10.26)10
.27

Consulting Agreement between the
    Registrant, Triad Guaranty Insurance Corporation, Triad Guaranty
    Assurance Company and Collateral Mortgage, Ltd. Providing advice
    and counsel regarding the investment strategy and tactics of
    Conning Asset Management Company, the Registrants new
    investment advisor. (11) (Exhibit 10.27)10
.28

Administrative Services Agreement
    between the Registrant, Triad Guaranty Insurance Corporation,
    Collateral Mortgage, Ltd., Collat, Inc., and New South Federal
    Savings Bank. (11) (Exhibit 10.28)10
.30

Exchange Agreement by and among
    the Registrant, Collateral Investment Corp. and the Shareholders
    of Collateral Investment Corp. Listed on the Signature Pages
    Hereto.(12)(Exhibit 10.30)10
.32

Employment Agreement and Related
    Document between the Registrant and Mark K. Tonnesen.
    (3)(13)(Exhibit 10.32)10
.34

Summary of plan of compensation
    for directors of the Registrant. (3) (14)10
.35

Form of 2006 Triad Guaranty Inc.
    2006 Long-Term Stock Incentive Plan, replacing previous Exhibit
    10.1 (3) (15) (Exhibit 10.35)10
.36

Amendment to Employment Agreement
    between the Registrant and Ron D. Kessinger, replacing previous
    Exhibit 10.33 (3) (15) (Exhibit 10.36)10
.37

Agreement entered into between the
    Registrant and Kenneth W. Jones (3) (15) (Exhibit 10.37)10
.38

Resignation and Release Agreement
    entered into between the Registrant and Eric B. Dana (3) (15)
    (Exhibit 10.38)10
.39

Employment Agreement between the
    Registrant and Kenneth N. Lard, replacing previous Exhibits
    10.25 and 10.31 (3) (15) (Exhibit 10.39)10
.40

Amendment to Employment Agreement
    between the Registrant and Mark K. Tonnesen, amending Exhibit
    10.32 (3) (16) (Exhibit 10.40)10
.41

Executive/Key Employee Phantom
    Stock Award Agreement between Registrant and Mark K. Tonnesen
    (3) (16) (Exhibit 10.41)10
.42

Amendment to Employment Agreement
    between the Registrant and Ron D. Kessinger, replacing previous
    Exhibit 10.36 (3) (17) (Exhibit 10.42)*10
.43

Form of Executive Restricted Stock
    Agreement*10
.44

Form of Executive Stock Option
    Agreement*10
.45

Form of Outside Director
    Restricted Stock Agreement*10
.46

Form of Outside Director Stock
    Option Agreement21
.1

Subsidiaries of the Registrant (7)
    (Exhibit 21.1)*23
.1

Consent of Independent Registered
    Public Accounting Firm (Exhibit 23.1) 63




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##### Table of Contents



Exhibit Number

Description of Exhibit*31
.1

Chief Executive Officer
    Sarbanes-Oxley Act Section 302 Certification dated March 7,
    2007, for the Triad Guaranty Inc.s Annual report on Form
    10-K for the year ended December 31, 2006.*31
.2

Chief Financial Officer
    Sarbanes-Oxley Act Section 302 Certification dated March 7,
    2007, for the Triad Guaranty Inc.s Annual report on Form
    10-K for the year ended December 31, 2006.*32
.1

Chief Executive Officer
    Sarbanes-Oxley Act Section 906 Certification dated March 7,
    2007, for the Triad Guaranty Inc.s Annual report on Form
    10-K for the year ended December 31, 2006.*32
.2

Chief Financial Officer
    Sarbanes-Oxley Act Section 906 Certification dated March 7,
    2007, for the Triad Guaranty Inc.s Annual report on Form
    10-K for the year ended December 31, 2006.     *
    
    Filed Herewith.(1)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the Registrants
    Registration Statement on
    Form S-1
    filed October 22, 1993 and amendments thereto.(2)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the 1993
    Form 10-K.(3)
    
    Denotes management contract or compensatory plan of arrangement
    required to be filed as an exhibit to this report pursuant to
    Item 601 of
    Regulation S-K.(4)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the 1996
    Form 10-K.(5)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the June 30, 1997
    Form 10-Q.(6)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the 1997
    Form 10-K.(7)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the 1999
    Form 10-K.(8)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the 2000
    Form 10-K.(9)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the June 30, 2002
    Form 10-Q.(10)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the 2002
    Form 10-K.(11)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the 2004
    Form 10-K.(12)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the June 30, 2005
    Form 10-Q.(13)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the September 30, 2005
    Form 10-Q.(14)
    
    Incorporated by reference to the
    Form 8-K
    Current Report filed March 2, 2006.(15)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the June 30, 2006
    Form 10-Q.(16)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the December 26, 2006
    Form 8-K
    Current Report.(17)
    
    Incorporated by reference to the exhibit identified in
    parentheses, filed as an exhibit in the January 18, 2007
    Form 8-K
    Current Report. 64




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##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM  The Board of Directors and Stockholders
 of Triad Guaranty Inc.
          
    65




---



##### Table of Contents



TRIAD
    GUARANTY INC.



CONSOLIDATED
    BALANCE SHEETS  December 312006


2005(In thousands, except share data)ASSETSInvested assets:Securities
    available-for-sale,
    at fair value:Fixed maturities (amortized cost:
    2006  $568,992; 2005  $518,137)

$
586,594


$
534,064Equity securities (cost:
    2006  $9,530; 2005  $7,001)


10,417



8,159Other investments


5,000



Short-term investments


5,301



4,796607,312



547,019Cash and cash equivalents


38,609



8,934Real estate acquired in claim
    settlement


10,170



5,721Accrued investment income


8,054



7,237Deferred policy acquisition costs


35,143



33,684Property and equipment, at cost
    less accumulated depreciation (2006  $21,160;
    2005  $18,628)


7,678



7,827Prepaid federal income tax


166,908



139,465Income taxes recoverable


51



181Reinsurance recoverable


841



948Other assets


20,865



16,487Total assets

$
895,631


$
767,503LIABILITIES AND
    STOCKHOLDERS EQUITYLiabilities:Losses and loss adjustment expenses

$
84,352


$
51,074Unearned premiums


13,193



13,494Amounts payable to reinsurers


5,909



4,810Deferred income taxes


176,483



155,189Long-term debt


34,510



34,501Accrued interest on debt


1,275



1,275Accrued expenses and other
    liabilities


9,685



7,969Total liabilities


325,407



268,312Commitments and contingencies
    (Notes 5, 7, and 14)Stockholders equity:Preferred stock, par value
    $0.01 per share  authorized
    1,000,000 shares, no shares issued and outstanding






Common stock, par value
    $0.01 per share  authorized
    33,091,400 shares, issued and outstanding
    14,856,401 shares at December 31, 2006, and 14,774,153
    at December 31, 2005


149



148Additional paid-in capital


104,981



103,657Accumulated other comprehensive
    income, net of income tax liability of $6,471 at
    December 31, 2006, and $5,980 at December 31, 2005


12,018



11,106Deferred compensation






(3,161
)Retained earnings


453,076



387,441Total stockholders equity


570,224



499,191Total liabilities and
    stockholders equity

$
895,631


$
767,503    66




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##### Table of Contents



TRIAD
    GUARANTY INC.



CONSOLIDATED
    STATEMENTS OF INCOME  Year Ended December 312006


2005


2004(In thousands, except share data)Revenue:Premiums written:Direct

$
256,706


$
207,260


$
176,696Ceded


(46,140
)


(40,644
)


(35,365
)Net premiums written


210,566



166,616



141,331Change in unearned premiums


290



2,381



(339
)Earned premiums


210,856



168,997



140,992Net investment income


26,696



22,998



19,754Net realized investment gains


1,584



36



504Other income


8



15



16239,144



192,046



161,266Losses and expenses:Net losses and loss adjustment
    expenses


94,227



66,855



35,864Interest expense on debt


2,774



2,773



2,772Amortization of deferred policy
    acquisition costs


16,268



14,902



14,256Other operating expenses (net of
    acquisition costs deferred)


35,556



29,610



26,483148,825



114,140



79,375Income before income taxes


90,319



77,906



81,891Income taxes:Current


4,078



2,805



2,295Deferred


20,606



18,288



21,17924,684



21,093



23,474Net income

$
65,635


$
56,813


$
58,417Earnings per common and common
    equivalent share:Basic

$
4.44


$
3.87


$
4.04Diluted

$
4.40


$
3.84


$
3.98Shares used in computing earnings
    per common and common equivalent share:Basic


14,769,859



14,691,478



14,458,453Diluted


14,912,519



14,808,387



14,681,228    67




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##### Table of Contents



TRIAD
    GUARANTY INC.



CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY  AccumulatedAdditional


OtherCommon


Paid-In


Comprehensive


Deferred


RetainedStock


Capital


Income


Compensation


Earnings


Total(In thousands, except share data)Balance at January 1, 2004

$
144


$
87,513


$
11,190


$
(1,128
)

$
272,211


$
369,930Net income


















58,417



58,417Other comprehensive
    income  net of tax:Change in net unrealized gain










2,028











2,028Comprehensive income






















60,445Issuance of common stock under
    stock incentive plan


2



3,739















3,741Tax effect of exercise of
    non-qualified stock options






1,995















1,995Net issuance of restricted stock
    under stock incentive plan






1,605







(1,605
)






Amortization of deferred
    compensation














1,232







1,232Balance at December 31, 2004


146



94,852



13,218



(1,501
)


330,628



437,343Net income


















56,813



56,813Other comprehensive
    income  net of tax:Change in net unrealized gain










(2,112
)










(2,112
)Comprehensive income






















54,701Issuance of common stock under
    stock incentive plan


2



3,267















3,269Tax effect of exercise of
    non-qualified stock options and vesting of restricted stock






2,090















2,090Net issuance of restricted stock
    under stock incentive plan






3,448







(3,448
)






Amortization of deferred
    compensation














1,788







1,788Balance at December 31, 2005


148



103,657



11,106



(3,161
)


387,441



499,191Net income


















65,635



65,635Other comprehensive
    income  net of tax:Change in net unrealized gain










912











912Comprehensive income






















66,547Adoption of SFAS 123(R)






(3,161
)






3,161







Share-based compensation






3,476















3,476Issuance of common stock under
    stock incentive plan






747















747Tax effect of exercise of
    non-qualified stock options and vesting of restricted stock






263















263Net issuance of restricted stock
    under stock incentive plan


1



(1
)














Balance at December 31, 2006

$
149


$
104,981


$
12,018


$



$
453,076


$
570,224    68




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##### Table of Contents



TRIAD
    GUARANTY INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 312006


2005


2004Operating activities

(In thousands)Net income

$
65,635


$
56,813


$
58,417Adjustments to reconcile net
    income to net cash provided by operating activities:Losses, loss adjustment expenses
    and unearned premium reserves


32,977



14,584



7,169Accrued expenses and other
    liabilities


1,716



1,421



(1,817
)Current taxes payable










(6
)Income taxes recoverable


130



796



(977
)Amounts due to/from reinsurers


1,206



559



941Accrued investment income


(817
)


(1,008
)


(1,654
)Policy acquisition costs deferred


(17,727
)


(16,133
)


(17,346
)Amortization of deferred policy
    acquisition costs


16,268



14,902



14,256Net realized investment gains


(1,584
)


(36
)


(504
)Provision for depreciation


2,531



3,456



3,319Accretion of discount on
    investments


130



(118
)


(836
)Deferred income taxes


20,606



18,288



21,179Prepaid federal income taxes


(27,443
)


(20,333
)


(21,008
)Real estate acquired in claim
    settlement, net of write-downs


(4,449
)


(5,510
)


(65
)Other assets


(4,378
)


(916
)


3,050Other operating activities


3,645



4,082



4,800Net cash provided by operating
    activities


88,446



70,847



68,918Investing activitiesSecurities
    available-for-sale:Purchases  fixed
    maturities


(172,782
)


(130,475
)


(153,262
)Sales  fixed maturities


116,101



35,900



57,864Maturities  fixed
    maturities


6,386



11,715



20,097Purchases  equities


(4,805
)






(809
)Sales  equities


3,183



1,853



2,674Purchases of other investments


(5,000
)






Net change in short-term
    investments


(505
)


7,724



(817
)Purchases of property and equipment


(2,382
)


(2,339
)


(2,895
)Net cash used in investing
    activities


(59,804
)


(75,622
)


(77,148
)Financing activitiesExcess tax benefits from
    share-based compensation


286







Proceeds from exercise of stock
    options


747



3,269



3,741Net cash provided by financing
    activities


1,033



3,269



3,741Net change in cash and cash
    equivalents


29,675



(1,506
)


(4,489
)Cash and cash equivalents at
    beginning of year


8,934



10,440



14,929Cash and cash equivalents at end
    of year

$
38,609


$
8,934


$
10,440Supplemental schedule of cash
    flow informationCash paid during the period for:Income taxes and United States
    Mortgage Guaranty Tax and Loss Bonds

$
34,454


$
24,733


$
23,692Interest

$
2,765


$
2,765


$
2,765    69




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##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2006 1.
    Accounting
    Policies  Nature
    of Business
    Basis
    of Presentation
    Consolidation
    Use of
    Estimates
    Investments
  available-for-sale available-for-sale other-than-temporary
      Cash
    and Cash Equivalents
   70




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Real
    Estate Acquired in Claim Settlement
    Deferred
    Policy Acquisition Costs
      Property
    and Equipment
    Loss
    and Loss Adjustment Expense Reserves
       71




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   Reinsurance
    Income
    Taxes
      Income
    Recognition
      Significant
    Customers
    Share-Based
    Compensation
  Accounting for Stock Issued to Employees
 72




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Share-Based
    Payment
    Income before income taxes

$
(1,159
)Net income

$
(753
)Earnings per share 
    basic

$
(0.05
)Earnings per share 
    diluted

$
(0.05
)       2005


2004(In thousands, except earnings per share information)Net income  as reported

$
56,813


$
58,417Net income  pro forma

$
56,155


$
57,915Earnings per share  as
    reported:Basic

$
3.87


$
4.04Diluted

$
3.84


$
3.98Earnings per share  pro
    forma:Basic

$
3.82


$
4.01Diluted

$
3.79


$
3.94   Foreign
    Currency Translation
  non-U.S. dollar
 73




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Earnings
    Per Share
    Comprehensive
    Income
  available-for-sale,
  2006


2005


2004(In thousands)Unrealized gains (losses) arising
    during the period, before taxes

$
2,988


$
(3,213
)

$
3,624Income tax (expense) benefit


(1,046
)


1,124



(1,268
)Unrealized gains (losses) arising
    during the period, net of taxes


1,942



(2,089
)


2,356Less reclassification adjustment:Gains realized in net income


1,584



36



504Income tax expense


(554
)


(13
)


(176
)Reclassification adjustment for
    gains realized in net income


1,030



23



328Other comprehensive income (loss)

$
912


$
(2,112
)

$
2,028   Recent
    Accounting Pronouncements
  Accounting for Uncertainty in Income Taxes  an
    Interpretation of FASB Statement No. 109
  Fair Value Measurements
  Considering the
    Effects of Prior Year Misstatements in Current Year Financial
    Statements
  The
    Fair Value Option for Financial Assets and Financial
    Liabilities  Including an Amendment of FASB Statement
    No. 115.
 74




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Reclassifications
      2.
    Investments    December 31, 2006Cost or


Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair Value(In thousands)Available-for-sale
    securities:Fixed maturity securities:U.S. government

$
12,119


$
4


$
(281
)

$
11,842State and municipal


541,389



17,306



(564
)


558,131Corporate


15,438



1,138



(4
)


16,572Mortgage-backed


46



3







49Total fixed maturity securities


568,992



18,451



(849
)


586,594Equity securities


9,530



954



(67
)


10,417Other investments


5,000











5,000Short-term investments


5,301











5,301$
588,823


$
19,405


$
(916
)

$
607,312   75




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31, 2005Cost or


Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair Value(In thousands)Available-for-sale
    securities:Fixed maturity securities:U.S. Government

$
12,348


$
16


$
(240
)

$
12,124State and municipal


486,014



14,993



(980
)


500,027Corporate


19,719



2,211



(75
)


21,855Mortgage-backed


56



2







58Total fixed maturity securities


518,137



17,222



(1,295
)


534,064Equity securities


7,001



1,284



(126
)


8,159Short-term investments


4,796











4,796$
529,934


$
18,506


$
(1,421
)

$
547,019     December 31, 2006Less Than 12 Months


12 Months or More


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedDescription of Securities

Value


Losses


Value


Losses


Value


Losses(In thousands)Fixed maturities:U.S. Government

$



$



$
10,968


$
(281
)

$
10,968


$
(281
)State and municipal


31,094



(159
)


20,632



(405
)


51,726



(564
)Corporate


392



(4
)










392



(4
)Subtotal


31,486



(163
)


31,600



(686
)


63,086



(849
)Equity securities


658



(56
)


205



(11
)


863



(67
)Total temporarily impaired
    securities

$
32,144


$
(219
)

$
31,805


$
(697
)

$
63,949


$
(916
)   76




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31, 2005Less Than 12 Months


12 Months or More


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedDescription of Securities

Value


Losses


Value


Losses


Value


Losses(In thousands)Fixed maturities:U.S. Government

$
8,376


$
(123
)

$
2,883


$
(117
)

$
11,259


$
(240
)State and municipal


57,969



(718
)


9,572



(262
)


67,541



(980
)Corporate


731



(75
)










731



(75
)Subtotal


67,076



(916
)


12,455



(379
)


79,531



(1,295
)Equity securities


1,105



(19
)


1,347



(107
)


2,452



(126
)Total temporarily impaired
    securities

$
68,181


$
(935
)

$
13,802


$
(486
)

$
81,983


$
(1,421
)   other-than-temporary
    Available-for-SaleAmortized


FairCost


Value(In thousands)Maturity:One year or less

$
27,566


$
28,040After one year through five years


146,279



151,569After five years through ten years


297,005



305,559After ten years


98,096



101,377Mortgage-backed securities


46



49Total

$
568,992


$
586,594  77




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  other-than-temporary
  Year Ended December 312006


2005


2004(In thousands)Securities
    available-for-sale:Fixed maturity securities:Gross realized gains

$
913


$
25


$
626Gross realized losses


(222
)


(305
)


(146
)Equity securities:Gross realized gains


1,113



396



416Gross realized losses


(207
)


(80
)


(435
)Foreign currency gross realized
    losses


(13
)






Covered call options:Gross realized gains










43Gross realized losses










Net realized gains

$
1,584


$
36


$
504       Year Ended December 312006


2005


2004(In thousands)Income:Fixed maturities

$
26,061


$
22,956


$
19,829Preferred stocks


313



334



385Common stocks


98



173



176Cash, cash equivalents and
    short-term investments


1,013



422



13527,485



23,885



20,525Expenses


(789
)


(887
)


(771
)Net investment income

$
26,696


$
22,998


$
19,754    78




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   3.
    Deferred
    Policy Acquisition Costs    Year Ended December 312006


2005


2004(In thousands)Balance at beginning of year

$
33,684


$
32,453


$
29,363Acquisition costs deferred:Sales compensation


7,072



6,296



7,340Underwriting and issue expenses


10,655



9,837



10,00617,727



16,133



17,346Amortization of acquisition
    expenses


16,268



14,902



14,256Net increase


1,459



1,231



3,090Balance at end of year

$
35,143


$
33,684


$
32,453   4.
    Reserve
    for Losses and Loss Adjustment Expenses    2006


2005


2004(In thousands)Reserve for losses and loss
    adjustment expenses at January 1, net of reinsurance
    recoverables

$
51,073


$
34,040


$
27,183Incurred losses and loss
    adjustment expenses net of reinsurance recoveries (principally
    in respect of default notices received in):Current year


70,141



43,215



25,942Deficiency on prior years


24,086



23,640



9,922Total incurred losses and loss
    adjustment expenses


94,227



66,855



35,864Loss and loss adjustment expense
    payments net of reinsurance recoveries (principally in respect
    of default notices received in):Current year


7,865



3,734



2,033Prior years


53,084



46,088



26,974Total loss and loss adjustment
    expense payments


60,949



49,822



29,007Reserve for losses and loss
    adjustment expenses at December 31, net of reinsurance
    recoverables of $1, $1, and $2 in 2006, 2005, and 2004,
    respectively

$
84,351


$
51,073


$
34,040    79




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   5.
    Commitments    2007


2,2672008


2,1442009


1,6532010


1,4662011


1,471Thereafter


1,377$
10,378     6.
    Federal
    Income Taxes    2006


2005


2004(In thousands)Income tax computed at statutory
    rate

$
31,612


$
27,267


$
28,662(Decrease) increase in taxes
    resulting from:Tax-exempt interest


(8,330
)


(7,199
)


(6,048
)Other


1,402



1,025



860Income tax expense

$
24,684


$
21,093


$
23,474  80




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005(In thousands)Deferred tax
    liabilitiesContingency loss reserve deduction

$
160,103


$
137,512Deferred policy acquisition costs


12,300



11,789Unrealized investment gain


6,471



5,980Other


2,646



2,260Total deferred tax liabilities


181,520



157,541Deferred tax assetsUnearned premiums


2,835



1,026Losses and loss adjustment expenses


1,640



1,017Other


562



309Total deferred tax assets


5,037



2,352Net deferred tax liability

$
176,483


$
155,189     7.
    Insurance
    in Force, Dividend Restriction, and Statutory Results      2006


2005(In thousands, except ratio)Net risk

$
8,612,912


$
7,312,697Statutory capital and surplus

$
168,439


$
131,582Contingency reserve


521,836



447,826Total

$
690,275


$
579,408Risk-to-capital
    ratio


12.5 to 1



12.6 to 1    81




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
     8.
    Related
    Party Transactions    9.
    Employee
    Benefit Plan    10.
    Reinsurance      2006


2005


2004(In thousands)Earned premiums:Direct

$
257,006


$
209,708


$
176,383Assumed


1



1



1Ceded


(46,151
)


(40,712
)


(35,392
)Net earned premiums

$
210,856


$
168,997


$
140,992Losses and loss adjustment
    expenses:Direct

$
94,229


$
66,852


$
35,876Assumed


(3
)


4



(14
)Ceded


1



(1
)


2Net losses and loss adjustment
    expenses

$
94,227


$
66,855


$
35,864    82




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      11.
    Long-Term
    Stock Incentive Plan      Weighted-Weighted-





AverageAverage Exercise


Aggregate


RemainingNumber of Shares


Price


Intrinsic Value


Contractual Term(In thousands)Outstanding, January 1, 2006


588,780


$
37.21Granted


15,594



44.79Exercised


35,142



21.28Cancelled


4,520



43.25Outstanding, December 31, 2006


564,712



38.36


$
9,379



4.6 yearsExercisable, December 31, 2006


432,603



37.19


$
7,684



3.4 years    83




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2006


2005


2004Expected volatility


33.7
%


34.0
%


40.0
%Expected dividend yield


0.0
%


0.0
%


0.0
%Expected term


5.0 years



7.7 years



7.0 yearsRisk-free rate


4.5
%


4.1
%


3.6
%       Weighted-AverageNumber of Shares


Grant-Date Fair ValueNonvested, January 1, 2006


101,415


$
46.93Granted


84,025



45.74Vested


34,264



47.09Canceled


37,235



44.14Nonvested, December 31, 2006


113,941



46.41         12.
    Long-term
    Debt   84




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  13.
    Fair
    Value of Financial Instruments    2006


2005Carrying


Fair


Carrying


FairValue


Value


Value


Value(In thousands)Financial AssetsFixed maturity securities
    available-for-sale

$
586,594


$
586,594


$
534,064


$
534,064Equity securities
    available-for-sale


10,417



10,417



8,159



8,159Other investments


5,000



5,000







Financial LiabilitiesLong-term debt


34,510



39,231



34,501



40,514           14.
    Contingencies   85




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  15.
    Unaudited
    Quarterly Financial Data    2006 QuarterFirst


Second


Third


Fourth


Year(In thousands, except per share data)Net premiums written

$
48,342


$
49,358


$
53,903


$
58,963


$
210,566Change in unearned premiums


(452
)


1,309



174



(741
)


290Earned premiums


47,890



50,667



54,077



58,222



210,856Net investment income


6,222



6,535



6,761



7,178



26,696Net losses incurred


16,351



17,271



19,305



41,300



94,227Underwriting and other expenses


13,068



13,308



14,081



14,141



54,598Net income


18,553



19,587



19,392



8,103



65,635Basic earnings per share


1.26



1.33



1.31



0.55



4.44Diluted earnings per share


1.25



1.31



1.30



0.54



4.40   2005 QuarterFirst


Second


Third


Fourth


Year(In thousands, except per share data)Net premiums written

$
38,711


$
40,611


$
42,973


$
44,321


$
166,616Change in unearned premiums


66



510



1,155



650



2,381Earned premiums


38,777



41,121



44,128



44,971



168,997Net investment income


5,415



5,743



5,896



5,944



22,998Net losses incurred


10,630



17,288



16,958



21,979



66,855Underwriting and other expenses


11,567



11,405



11,902



12,411



47,285Net income


15,760



13,199



15,294



12,560



56,813Basic earnings per share


1.08



0.90



1.04



0.85



3.87Diluted earnings per share


1.07



0.89



1.03



0.85



3.84  86




---



##### Table of Contents



SCHEDULE I
    SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN
    RELATED PARTIES
    TRIAD GUARANTY INC.
    December 31, 2006  Amount atCost or





Which ShownAmortized


Fair


in BalanceType of Investment

Cost


Value


Sheet(In thousands)Fixed maturity securities,
    available-for-sale:Bonds:U.S. Government obligations

$
12,119


$
11,842


$
11,842Mortgage-backed securities


46



49



49State and municipal bonds


541,389



558,131



558,131Corporate bonds


15,438



16,572



16,572Total


568,992



586,594



586,594Equity securities,
    available-for-sale:Common stocksBank, trust, and insurance


613



739



739Public utilities


146



173



173Industrial and miscellaneous


4,027



4,630



4,630Preferred stock


4,744



4,875



4,875Total


9,530



10,417



10,417Other investments


5,000



5,000



5,000Short-term investments


5,301



5,301



5,301Total investments other than
    investments in related parties

$
588,823


$
607,312


$
607,312  87




---



##### Table of Contents



SCHEDULE II 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    CONDENSED BALANCE SHEETS
    TRIAD GUARANTY INC.
    (Parent Company)  December 312006


2005(In thousands)ASSETS:Fixed maturities,
    available-for-sale

$
30,021


$
32,250Equity securities,
    available-for-sale


251



252Notes receivable from subsidiary


25,000



25,000Investment in subsidiary


547,220



478,310Short-term investments


213



681Other invested assets


5,000



Cash


1,880



1,996Accrued investment income


1,513



1,532Income taxes recoverable


37



176Other assets






95Total assets

$
611,135


$
540,292LIABILITIES AND
    STOCKHOLDERS EQUITY:Liabilities:Long-term debt

$
34,510


$
34,501Accrued interest on long-term debt


1,275



1,275Deferred income taxes


5,102



5,305Accrued expenses and other
    liabilities


24



20Total liabilities


40,911



41,101Stockholders equity:Common stock


149



148Additional paid-in capital


104,981



103,657Accumulated other comprehensive
    income


12,018



11,106Deferred compensation






(3,161
)Retained earnings


453,076



387,441Total stockholders equity


570,224



499,191Total liabilities and
    stockholders equity

$
611,135


$
540,292    88




---



##### Table of Contents



SCHEDULE II 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    CONDENSED STATEMENTS OF INCOME
    TRIAD GUARANTY INC.
    (Parent Company)
  Year Ended December 312006


2005


2004(In thousands)Revenues:Net investment income

$
3,712


$
3,510


$
3,251Realized investment gains (losses)


(185
)


(87
)


1423,527



3,423



3,393Expenses:Interest on long-term debt


2,774



2,772



2,772Operating expenses


3,489



1,783



1,2306,263



4,555



4,002Loss before federal income taxes
    and equity in undistributed income of subsidiary


(2,736
)


(1,132
)


(609
)Income tax expense (benefit):Current


176







28Deferred


(676
)


(505
)


(500
)


(505
)


28Loss before equity in
    undistributed income of subsidiary


(2,236
)


(627
)


(637
)Equity in undistributed income of
    subsidiary


67,871



57,440



59,054Net income

$
65,635


$
56,813


$
58,417    89




---



##### Table of Contents



SCHEDULE II 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    CONDENSED STATEMENTS OF CASH FLOWS 
    TRIAD GUARANTY INC.
    (Parent Company)
  Year Ended December 312006


2005


2004(In thousands)Operating Activities:Net income

$
65,635


$
56,813


$
58,417Adjustments to reconcile net
    income to net cash provided by operating activities:Equity in undistributed income of
    subsidiary


(67,871
)


(57,440
)


(59,054
)Accrued investment income


19



(50
)


(174
)Other assets


95



1,156



(823
)Deferred income taxes


(676
)


(505
)


Current taxes


139



963



(1,139
)Accretion of discount on
    investments


3



2



(61
)Amortization of deferred
    compensation


3,476



1,788



1,232Amortization of debt issue costs


9



8



7Realized investment (gains) losses
    on securities


185



87



(142
)Other liabilities


4



(50
)


70Other operating activities


16



2,049



3,595Net cash provided by operating
    activities


1,034



4,821



1,928Investing Activities:Fixed maturities:Purchases


(9,079
)


(8,795
)


(10,246
)Sales and maturities


11,428



641



3,319Equity Securities:Sales






163



Purchases of other assets


(5,000
)






Change in short-term investments


468



161



1,722Net cash used in investing
    activities


(2,183
)


(7,830
)


(5,205
)Financing Activities:Excess tax benefits related to
    share based payments


286







Proceeds from exercise of stock
    options


747



3,269



3,741Net cash provided by financing
    activities


1,033



3,269



3,741Increase in cash


(116
)


260



464Cash at beginning of year


1,996



1,736



1,272Cash at end of year

$
1,880


$
1,996


$
1,736    90




---



##### Table of Contents



SCHEDULE II 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    TRIAD GUARANTY INC.
    (Parent Company)
    SUPPLEMENTARY NOTES
  1.
    Basis of
    Presentation and Significant Accounting Policies    2.
    Nature of
    Operations    3.
    Investments    Cost or


Gross


GrossAmortized


Unrealized


Unrealized


FairAt December 31, 2006

Cost


Gains


Losses


ValueFixed maturity securities:Corporate

$
500


$
11


$



$
511Municipal


28,286



1,232



(8
)


29,510Total


28,786



1,243



(8
)


30,021Equity securities


250



1







251Other investments


5,000











5,000Short-term investments


213











213Total

$
34,249


$
1,244


$
(8
)

$
35,485  91




---



##### Table of Contents



SCHEDULE II 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    TRIAD GUARANTY INC.
    (Parent Company)
    SUPPLEMENTARY NOTES
  Cost or


Gross


GrossAmortized


Unrealized


Unrealized


FairAt December 31, 2005

Cost


Gains


Losses


ValueFixed maturity securities:Corporate

$
499


$
21


$



$
520U.S. Government


250







9



241Municipal


30,560



1,044



115



31,489Total


31,309



1,065



124



32,250Equity securities


250



2







252Short-term investments


681











681Total

$
32,240


$
1,067


$
124


$
33,183     Year Ended December 312006


2005


2004Income:Fixed maturities

$
1,396


$
1,309


$
1,017Equity securities


18



32



36Cash and short-term investments


82



36



6Note receivable from subsidiary


2,240



2,231



2,2253,736



3,608



3,284Expenses


24



98



33Net investment income

$
3,712


$
3,510


$
3,251   4.
    Debt   92




---



##### Table of Contents



SCHEDULE IV 
    REINSURANCETRIAD GUARANTY INC.
    MORTGAGE INSURANCE PREMIUM EARNED
    Years Ended December 31, 2006, 2005 and 2004 Ceded To


Assumed





Percentage ofGross


Other


From Other


Net


Amount AssumedAmount


Companies


Companies


Amount


to Net(In thousands)2006

$
257,006


$
46,151


$
1


$
210,856



0.0%2005

$
209,708


$
40,712


$
1


$
168,997



0.0%2004

$
176,383


$
35,392


$
1


$
140,992



0.0%  93