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

                                    FORM 10-K

[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934For the fiscal year ended December 31, 1999
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ___________ to ___________
Commission file number 0-22342
                                   -----------

                               TRIAD GUARANTY INC.
             (Exact name of registrant as specified in its charter)

            DELAWARE                                            56-1838519
(State or other jurisdiction of                             (I.R.S. Employer
 incorporation or organization)                             Identification No.)

                       101 SOUTH STRATFORD ROAD, SUITE 500
                       WINSTON-SALEM, NORTH CAROLINa 27104
               (Address of principal executive offices) (Zip Code)

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

           Securities registered pursuant to Section 12(b) of the Act:

                                      NONE

           Securities registered pursuant to Section 12(g)of the Act:

                               Title of each class
                               -------------------
                     Common Stock, par value $.01 per share

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

Indicate by check mark if disclosure of delinquent  filers  pursuant to Item 405
of Regulation  S-K is not contained  herein,  and will not be contained,  to the
best of registrant's  knowledge,  in definitive proxy or information  statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /

The  aggregate  market  value of the voting stock held by  nonaffiliates  of the
registrant as of March 2, 2000, computed by reference to the last reported price
at which the stock was sold on such date, was $134,504,077.

The number of shares of the registrant's common stock, par value $.01 per share,
outstanding as of March 2, 2000 was 13,313,194.

Portions of the following documents                  Part of this Form 10-K into
are incorporated by reference into                   which the document is
this Form 10-K:                                      incorporated by reference:

      TRIAD GUARANTY INC.                                     PART III
      PROXY STATEMENT FOR 2000 ANNUAL MEETING
      OF STOCKHOLDERS


<PAGE>
                                     PART I

ITEM 1.       BUSINESS.

     Triad Guaranty Inc. is a holding  company which,  through its  wholly-owned
subsidiary,  Triad Guaranty Insurance  Corporation  ("Triad"),  provides private
mortgage insurance ("MI") coverage in the United States to residential  mortgage
lenders,  including  mortgage bankers,  mortgage brokers,  commercial banks, and
savings institutions.  Triad Guaranty Inc. and its subsidiaries are collectively
referred to as the  "Company."  The  "Company"  when used  within this  document
refers  to the  holding  company  and/or  one or  more of its  subsidiaries,  as
appropriate.

     Private mortgage insurance,  also known as mortgage guaranty insurance,  is
issued  in  most  home  purchases  and   refinancings   involving   conventional
residential  first  mortgage loans to borrowers with equity of less than 20%. If
the  homeowner  defaults,  private  mortgage  insurance  reduces,  and  in  some
instances eliminates, the loss to the insured lender. Private mortgage insurance
also  facilitates  the sale of low down payment  mortgage loans in the secondary
mortgage  market,  principally  to the Federal  Home Loan  Mortgage  Corporation
("Freddie Mac") and the Federal National  Mortgage  Association  ("Fannie Mae").
Under risk-based capital regulations applicable to most financial  institutions,
private mortgage insurance also reduces the capital requirement for such lenders
on residential mortgage loans with equity of less than 20%.

     Triad  was  formed  in  1987  as a  wholly-owned  subsidiary  of  Primerica
Corporation and began writing private  mortgage  insurance in 1988. In September
1989,  Triad was  acquired by  Collateral  Mortgage,  Ltd.  ("CML"),  a mortgage
banking and real estate  lending firm located in Birmingham,  Alabama.  In 1990,
CML  contributed  the  outstanding  stock of Triad to its affiliate,  Collateral
Investment Corp. ("CIC"), an insurance holding company.

     The Company was  incorporated  by CIC in Delaware in August  1993,  for the
purpose of  holding  all the  outstanding  stock of Triad and to  undertake  the
initial public  offering of the Company's  Common Stock,  which was completed in
November 1993.  CIC currently  owns 20.1% and CML owns 19.3% of the  outstanding
Common Stock of the Company.

     The  principal  executive  offices of the  Company are located at 101 South
Stratford Road,  Suite 500,  Winston-Salem,  North Carolina 27104. Its telephone
number is (336) 723-1282.

TYPES OF MORTGAGE INSURANCE PRODUCTS

     There are two  principal  types of  private  mortgage  insurance  coverage:
"primary" and "pool." The Company offers only primary insurance.

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PRIMARY INSURANCE

     Primary insurance  provides mortgage default protection on individual loans
and covers unpaid loan  principal,  delinquent  interest,  and certain  expenses
associated with the default and subsequent foreclosure (collectively, the "claim
amount").  The  claim  amount,  to which  the  appropriate  coverage  percentage
(typically 15% to 30% as of December 31, 1999) is applied, generally ranges from
110% to  115%  of the  unpaid  principal  balance  of the  loan.  The  Company's
obligation  to an  insured  lender  with  respect  to a claim is  determined  by
applying the  appropriate  coverage  percentage to the claim  amount.  Under its
master policy,  the Company has the option of paying the entire claim amount and
taking title to the mortgaged property or paying the coverage percentage in full
satisfaction of its obligations under the insurance  written.  Primary insurance
can be placed on many types of loan  instruments and generally  applies to loans
secured by mortgages on owner occupied homes. The Company  underwrities  primary
insurance on a loan-by-loan basis and on a "delegated  underwriting"  basis to a
select group of lenders.  Mortgage  originators who participate in the Company's
delegated  program are allowed to issue a certificate  of insurance on the loans
it underwrites if certain strict qualifications are met.

     The Company offers primary coverage generally ranging from 6% to 35% of the
claim amount with most coverage in the 15% to 30% range as of December 31, 1999.
The  coverage  percentage  provided  by the  Company is  selected by the insured
lender,  subject to the  Company's  underwriting  approval,  usually in order to
comply with  existing  Freddie Mac and Fannie Mae  requirements  to reduce their
loss exposure on loans they purchase to 75% or less of the  property's  value at
the time the loan is originated.  In January 1999,  Fannie Mae announced that it
would accept lower coverage percentages from lenders on certain loans for resale
to the secondary  market than it previously  required.  In conjunction  with the
announcement,  Fannie Mae  reduced  the  coverage  requirement  so that its loss
exposure on loans processed by its automated underwriting system will be limited
to 80% or less of the  property's  value  at the time of  origination.  In March
1999, Freddie Mac introduced a similar program.

     The Company's  premium rates vary  depending upon the  loan-to-value  (LTV)
ratio, loan type, mortgage term, coverage amount, and type, which all affect the
perceived risk of a claim on the insured mortgage loan. Generally, premium rates
cannot be changed after the issuance of coverage.  The Company,  consistent with
industry practice, generally utilizes a nationally based, rather than a regional
or local, premium rate structure.

     Mortgage  insurance  premiums are usually paid by the mortgage  borrower to
the  mortgage  lender or  servicer,  which in turn  remits the  premiums  to the
mortgage  insurer.  The Company has three basic types of borrower  paid  premium
plans.  The first is a monthly  premium plan under which only one or two months'
premium is paid at the mortgage loan closing.  Thereafter level monthly premiums
are  collected by the loan servicer for monthly  remittance to the Company.  The

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Company  also offers a plan under  which the first  monthly  mortgage  insurance
payment is deferred  until the first loan  payment is  remitted to the  Company.
This deferred monthly premium product decreases the amount of cash required from
the  borrower  at closing,  therefore  making home  ownership  more  affordable.
Monthly  premium plans  represented  96% of new insurance  written in 1999.  The
Company  expects that the percentage of new business  written on monthly premium
plans will remain near the current level.

     The second type of premium  payment plan is an annual premium plan in which
a  first-year  premium is paid at the mortgage  loan closing and annual  renewal
payments,  which  are  generally  less  than the first  year  premium,  are paid
thereafter. Renewal payments are collected monthly from the borrower and held in
escrow by the mortgage  lender or servicer for annual  remittance  in advance of
each renewal year.

     The third type of premium  payment plan  requires a single  payment paid at
the loan closing.  The single premium payment can be financed by the borrower by
adding  it to the  principal  amount of the  mortgage  or can be paid in cash at
closing by the borrower.

     In addition to the borrower paid plans,  the Company has a lender-paid plan
whereby mortgage  insurance  premiums are charged to the mortgage lender or loan
servicer,  which pays the premium to the Company. The lender builds the mortgage
insurance premium into the borrower's  interest rate. The Company's  lender-paid
plan allows the lender to offer  borrowers  lower cost mortgages by reducing the
necessary  closing costs compared to certain  borrower paid plans. The Company's
lender-paid plan has been approved for use by Fannie Mae and Freddie Mac.

POOL INSURANCE

     Pool insurance has generally been offered by private  mortgage  insurers to
lenders  as an  additional  "credit  enhancement"  for  certain  mortgage-backed
securities  and  provides  coverage  for the full amount of the net loss on each
individual loan included in the pool,  subject to a provision limiting aggregate
losses to a specified  percentage of the total original balances of all loans in
the pool.  Modified pool insurance provides coverage for a specified  percentage
of the claim  amount for each loan  insured,  subject  to an  overall  stop-loss
provision  applicable to the entire pool of loans insured.  The Company does not
offer pool insurance.

RISK SHARING PRODUCTS

     The Company has in place mortgage insurance programs designed to enable the
Company to better meet the needs and requirements of its lender  customers.  One
such program,  introduced in 1997,  increases the lender's  share of the risk of
loss on an insured  book of business  and  provides  for a fee to the lender for
this  increased  risk. In 1999,  the Company  began  marketing  certain  captive
reinsurance programs which allow a reinsurance  company,  generally an affiliate

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of the  lender,  to assume  mortgage  insurance  default  losses up to a maximum
exposure.  Regulatory and industry  issues exist regarding the future of certain
risk sharing  programs  currently being marketed  within the mortgage  insurance
industry. The resolution of the regulatory and industry questions regarding risk
sharing  programs  makes the  continued  viability of such  programs  uncertain.
Management  is unable to predict  the impact of the  regulatory  issues on these
products.

CANCELLATION OF INSURANCE

     Mortgage  insurance  coverage  cannot be canceled by the Company except for
nonpayment of premium or certain material  violations of the master policy,  and
remains  renewable  at the option of the  insured  lender.  Generally,  mortgage
insurance  is  renewable  at a rate  fixed  when the  insurance  on the loan was
initially issued.

     Insured  lenders  may  cancel  insurance  at any  time at their  option.  A
borrower may request  that an insured  servicer  cancel  insurance on a mortgage
loan when its loan balance is less than 80% of the property's current value, but
loan servicers are generally  restricted in their ability to grant such requests
by  secondary  market  requirements  as  well  as by  certain  other  regulatory
restrictions.  Pursuant to federal  legislation enacted in 1998, most loans made
on or after July 29, 1999, are required to have their private mortgage insurance
canceled automatically by the lenders when the outstanding loan amount is 78% or
less of the original property purchase price.

     When a borrower refinances a Company-insured mortgage loan by paying it off
in full with the proceeds of a new  Company-insured  mortgage,  the insurance on
that  existing  mortgage  is  canceled,  and  insurance  on the new  mortgage is
considered to be new insurance written. Therefore, continuation of the Company's
coverage from a refinanced  loan to a new loan results in both a cancellation of
insurance and new insurance  written.  The  percentage of new insurance  written
represented by refinanced  loans was 25.0%,  31.7%, and 14.0% in 1999, 1998, and
1997,  respectively,  reflecting the low interest rate environment during all of
1998 and early 1999 and increases in interest rates in recent months.

     To the extent canceled insurance  coverage in areas  experiencing  economic
growth is not replaced by new  insurance in such areas,  the  percentage  of the
Company's  book of business in  economically  weaker  areas may  increase.  This
development may occur during periods of heavy mortgage  refinancing.  Refinanced
loans in regions experiencing economic growth are less likely to require private
mortgage  insurance,  while borrowers in economically  distressed areas are less
likely to qualify for  refinancing  because of  depreciated  real estate values.
Throughout  the 1990's,  high  refinancing  activity  occurred  because of lower
mortgage  interest rates. The percentage of the Company's  insurance in force at
the end of the previous  year that was canceled  during the  following  year was
22.9%, 30.0%, and 16.5% in 1999, 1998, and 1997, respectively. The cancellations
have not had a material  impact on the  geographic  dispersion  of the Company's
risk in force.

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<PAGE>


CUSTOMERS

     Residential  mortgage lenders such as mortgage  bankers,  mortgage brokers,
commercial  banks and savings  institutions  are the principal  customers of the
Company. At December 31, 1999,  approximately 57% of the Company's risk in force
came from mortgage  bankers,  19% from  mortgage  brokers,  18% from  commercial
banks, and 6% from savings institutions. At December 31, 1998, approximately 55%
of the  Company's  risk in force came from mortgage  bankers,  20% from mortgage
brokers, 18% from commercial banks, and 7% from savings  institutions.  Although
mortgage  lenders are the Company's  principal  customers,  individual  mortgage
borrowers generally bear the cost of primary insurance coverage.

     To obtain primary insurance from the Company,  a mortgage lender must first
apply for and receive a master policy from the Company.  The Company's  approval
of a lender as a master  policyholder  is based,  among other  factors,  upon an
evaluation of the lender's financial position and its management's  demonstrated
adherence to sound loan origination practices.

     The master  policy  sets forth the terms and  conditions  of the  Company's
mortgage  insurance  policy.  The master  policy does not obligate the lender to
obtain  insurance  from the  Company,  nor does it obligate the Company to issue
insurance on a particular  loan. The master policy provides that the lender must
submit  individual  loans for insurance to the Company and the loan,  subject to
certain  underwriting  criteria,  must be  approved  by the  Company  to  effect
coverage  (except in the case of delegated  underwriting and when the originator
has the authority to approve  coverage within certain  guidelines).  The Company
had 6,948  master  policy  holders at December  31,  1999,  compared to 6,214 at
December 31, 1998.

     The Company's ten largest customers were responsible for 31.0%,  31.7%, and
32.2%  of  direct  risk  in  force  at  December  31,  1999,   1998,  and  1997,
respectively.  No  single  customer  of  the  Company  (including  branches  and
affiliates of that  customer)  accounted for revenues  greater than 10% of total
revenues for 1999. The largest single customer of the Company,  measured by risk
in force,  accounted for 9.2%,  9.5%, and 10.2% at December 31, 1999,  1998, and
1997, respectively.

SALES AND MARKETING

     The Company currently markets its insurance products through a sales force,
including sales management,  of 49 professionals  and an exclusive  commissioned
general agency serving a specific  geographic market. The Company is licensed to
do business in 46 states and the District of Columbia  and has licenses  pending
in two states. The Company is actively serving mortgage originators in 38 states
and the District of Columbia.

     In 1999,  the Company  strengthened  its sales force by  restructuring  the
sales  team into four  sales  regions,  each with its own  manager.  These  four
regional  mangers  report to a field  administrator  who  oversees  all  account
executive  activities.  The field  administrator  reports directly to the senior
executive  officer who oversees all sales activities for the Company,  including

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those of the national account market  representatives.  This reporting structure
allows the senior  executive in charge of all sales  activities to focus time on
the growing national account market of larger lenders while remaining in control
of all other sales activities. Currently, the Company is approved to do business
with 21 of the top 30 lenders compared to 24 at year end 1998. This reduction is
due solely to three new  entrants  into the top 30 ranking  with which Triad has
not yet  developed  a  relationship.  The  Company  will  continue  to  evaluate
geographic  expansion  opportunities,  as well as the need for additional  sales
representation.

     The success of the Company is  dependent  upon the services of its internal
sales force and general  agents.  For 1999, the Company's  commissioned  general
agency produced  approximately 11% of the Company's new direct insurance written
while the salaried account  executives and the national account  representatives
produced  the  remainder.  The loss of the  services  of any of its key  account
executives  or the general  agency could have a material  adverse  effect on the
Company's operations.

     In 1999, the Company  strengthened its marketing team by restructuring  the
department  and  hiring  a senior  level  marketing  executive  to  oversee  all
marketing  efforts.  The Company's  marketing focus is to support the sales team
members  and  to  build  a  positive  image  of the  Company.  These  goals  are
accomplished  through a  comprehensive  sales  support  program  which  includes
assistance with  presentation,  training,  and  administrative  material,  and a
national  advertising and public relations  campaign designed to raise corporate
visibility  within  the  sights of  lenders  and  investors.  The  Company  also
completely  revised its web site in 1999 to be more user-friendly and to provide
more  functionality  for  customers,  investors,  home  buyers,  and real estate
professionals.

     The Company provides, for a fee, contract underwriting services that enable
customers to improve the efficiency of their  operations by  outsourcing  all or
part of their mortgage loan underwriting.  Contract  underwriting  services have
become  increasingly  important  to lenders as they seek to reduce  fixed costs.
Accordingly,  contract underwriting  significantly  contributes to the Company's
mortgage  insurance  production.  The  Company  provides  contract  underwriting
services  through its own  employees  as well as  independent  contractors.  The
Company's  inability to maintain  and provide a  sufficient  number of qualified
underwriters could have a material adverse effect on the Company's operations.

COMPETITION AND MARKET SHARE

     The Company and other  private  mortgage  insurers  compete  directly  with
federal and state governmental and quasi-governmental agencies,  principally the
Federal Housing Administration ("FHA"). These agencies sponsor government-backed
mortgage  insurance  programs which accounted for  approximately 48% of high LTV
loans in 1999 and 44% in 1998. In addition to competition from federal agencies,
the  Company  and  other  private   mortgage   insurers  face  competition  from
state-supported  mortgage insurance funds.  Several of these states (among them,

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California,  Connecticut,  Massachusetts,  New York,  and  Vermont)  have  state
housing insurance funds which are either independent agencies or affiliated with
state  housing  agencies.  Indirectly,  the Company also  competes  with certain
mortgage lenders which forego private mortgage insurance and self-insure against
the risk of loss from  defaults  on all or a portion  of their low down  payment
mortgage loans.

     Fannie Mae and Freddie Mac announced in the first quarter of 1999 that they
would accept lower coverage percentages from lenders on certain loans for resale
to the secondary market than had been previously required.  The reduction in the
amount of private  mortgage  insurance  coverage  required  or the  adoption  of
private  mortgage  insurance  substitutes  by Fannie  Mae or  Freddie  Mac could
adversely affect the Company's financial condition and results of operations.

     Various  proposals  are being  discussed  by Congress  and certain  federal
agencies to reform or modify the FHA.  Management is unable to predict the scope
and content of such  proposals,  or whether any such  proposals  will be enacted
into law, and if enacted, the effect on the Company.

     The private mortgage  insurance  industry consists of eight active mortgage
insurance  companies including Triad,  Mortgage Guaranty Insurance  Corporation,
General Electric Mortgage Insurance Corporation, PMI Mortgage Insurance Co., CMG
Mortgage Insurance Co., United Guaranty Residential Insurance Company,  Republic
Mortgage  Insurance  Company,  and Radian  Guaranty  Inc.  Triad is the  seventh
largest private  mortgage  insurer based on 1999 market share and,  according to
industry  data, had a 2.3% share of net new mortgage  insurance  written in 1999
compared to 2.6% in 1998.

     Management  believes  the  Company  competes  with other  private  mortgage
insurers  principally on the basis of personalized and professional  service,  a
strong management and sales team, and innovative products.

UNDERWRITING PRACTICES

     The  Company  considers  effective  risk  management  to be critical to its
long-term financial stability. Market analysis, prudent underwriting, the use of
automated  risk  evaluation  models,  auditing,  and  customer  service  are all
important elements of the Company's risk management process.

UNDERWRITING PERSONNEL

     The Company's  Senior Vice President of Risk  Management and Vice President
of Underwriting have been in their positions since shortly after the Company was
founded  and  report  directly  to the  Executive  Vice  President  in charge of
Services  and  Risk  Management.  In  addition  to  a  centralized  underwriting


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department in the home office, the Vice President of Underwriting is responsible
for the  Company's  regional  offices  in  Georgia,  Texas,  Illinois,  Arizona,
Pennsylvania,  Colorado,  and  California.  The Senior  Vice  President  of Risk
Management is responsible  for assessing the risk factors used by the Company in
its underwriting procedures and for the quality control function.

     The Company  employed an  underwriting  staff of  forty-one at December 31,
1999. The Company's field underwriters and underwriting  managers are limited in
their authority to approve  programs for certain  mortgage loans.  The authority
levels are tied to underwriting position,  knowledge,  and experience and relate
primarily to loan amounts and property  type.  All loans  insured by the Company
are subject to quality control reviews.

RISK MANAGEMENT APPROACH

     The  Company's  risk  management  objective  is to  build  a  portfolio  of
insurance in force with a claims  incidence less than the expected  claims rates
on  which  its  premium  rates  are  based.  The  Company  underwrites  based on
historical  performance  of risk  factors and  utilizes  automated  underwriting
systems  in  the  risk  selection   process  to  assist  the  underwriter   with
decision-making. This process evaluates the following categories of risk:

     *    MORTGAGE   LENDER.   The  Company  reviews  each  lender's   financial
          statements and management  experience  before issuing a master policy.
          The  Company  also  tracks  the  historical  risk  performance  of all
          customers that hold a master policy. This information is factored into
          the  determination  of the loan programs that the Company will approve
          for  various  lenders.  The  Company  assigns  delegated  underwriting
          authority  only to lenders with  substantial  financial  resources and
          established records of originating good quality loans.

     *    PURPOSE  AND  TYPE  OF  LOAN.   The  Company   analyzes  four  general
          characteristics  of a loan to  evaluate  its  level of  risk:  (i) LTV
          ratio;  (ii) purpose of the loan; (iii) type of loan instrument;  and,
          (iv) type of  property.  The  Company  seeks  only the most basic loan
          types with proven track records for which an assessment of risk can be
          readily made and the premium received  sufficiently offsets that risk.
          Loans having  higher LTV ratios are charged a higher  premium,  as are
          other  loans  which have been  shown to carry  higher  risks,  such as
          adjustable rate mortgages  ("ARMs").  Certain  categories of loans are
          not actively  pursued by the Company  because such loans are deemed to
          have  a  disproportionate   amount  of  risk,   including   negatively
          amortizing  ARMs and ARMs with maximum  annual and lifetime  caps that
          are not prudent.

     *    INDIVIDUAL LOAN AND BORROWER.  Except to the extent that the Company's
          delegated  underwriting  program  and Freddie  Mac's and Fannie  Mae's
          automated  underwriting  services  are  being  utilized,  the  Company
          evaluates  insurance   applications  based  on  its  analysis  of  the
          borrower's  ability and willingness to repay the mortgage loan and the


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          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.  Loans may be
          submitted  under the Stick With Triad program  provided the loans meet
          the program requirements.  Further description of the Stick with Triad
          program is located in the Underwriting  Process  section.  Within this
          program,   the  degree  to  which  the  borrower   must  meet  certain
          underwriting standards, as well as the amount of documentation that is
          required,  is a function of the credit score. In the case of delegated
          underwriting,  compliance  with  program  parameters  is  monitored by
          periodic audits of delegated business. With the automated underwriting
          services  provided by Freddie Mac and Fannie Mae,  lenders are able to
          obtain approval for mortgage guaranty insurance with any participating
          mortgage insurer. Triad works with both agencies in offering insurance
          services  through their systems,  while monitoring the risk quality of
          loans insured through such systems.

     *    GEOGRAPHIC  SELECTION OF RISK. The Company places significant emphasis
          on the condition of the regional  housing  markets in determining  its
          marketing and underwriting policies.  Using both internal and external
          data, the Company's risk management  department  continually  monitors
          the economic conditions in the Company's active and potential markets.

UNDERWRITING PROCESS

     The Company accepts  applications for insurance under three basic programs:
the  traditional  fully  documented  program,  a  credit  score  driven  reduced
documentation  program,  and a delegated  underwriting  program,  which allows a
lender's  underwriters to commit insurance to a loan based on strict agreed upon
underwriting guidelines.

     The Company  utilizes  nationwide  underwriting  guidelines to evaluate the
potential  risk of default on mortgage loans  submitted for insurance  coverage.
These  guidelines  have  evolved  over  time  and  take  into  account  the loss
experience of the entire  private  mortgage  insurance  industry.  They are also
largely  influenced by Freddie Mac and Fannie Mae underwriting  guidelines.  The
Company  believes its  guidelines  are generally  consistent  with those used by
other  private  mortgage  insurers  with  respect to the types of loans that the
Company will insure.  As a result of the Company's review of regional  economies
and housing patterns,  specific  underwriting  guidelines  applicable to a given
local,  state, or regional  market will be modified to address  concerns in that
market.

     Subject to the Company's  underwriting  guidelines  and exception  approval
procedures,  the Company  expects its  internal  and  contract  underwriters  to
utilize their  experience and business  judgement in evaluating each loan on its
own merits.  Accordingly,  the Company's  underwriting  staff has  discretionary
authority  to insure  loans which  deviate in certain  minor  respects  from the


                                       10
<PAGE>


Company's  underwriting  guidelines.  More significant exceptions are subject to
management approval. In all such cases, compensating factors must be identified.
The  predominant  reason  for  such  deviations  involves  instances  where  the
borrower's debt-to- income ratio exceeds the Company's guidelines. To compensate
for exceptions,  the Company's underwriters give favorable consideration to such
factors as excellent  borrower credit history,  the availability of satisfactory
cash reserves after closing, and employment stability.

     In addition to the  borrower's  willingness  and ability to repay the loan,
the Company  believes  that  mortgage  default  risk is affected by a variety of
other factors,  including the borrower's  employment  status.  Insured  mortgage
loans made to  self-employed  borrowers  are  perceived  by the  Company to have
higher risk of claim,  all other  factors  being equal,  than loans to borrowers
employed by third parties.  The Company's  percentage of risk in force involving
self-employed  borrowers  was 2.1%  and  2.4% at  December  31,  1999 and  1998,
respectively.

     The  Company's  Stick With Triad  program  featuring  the Slam Dunk Loan SM
approval  process allows lenders to submit  insurance  applications  that do not
include  all  standard  documentation.   Under  this  program,  Triad  issues  a
certificate  of  insurance  based on the  borrower's  FICO  credit  score or the
approval  of  the  loan  through   Fannie  Mae's  or  Freddie  Mac's   automated
underwriting  systems. The Company issues a certificate of insurance without the
standard  underwriting  process if certain  program  parameters  are met and the
borrower has a  predetermined  minimum  credit score.  Documentation  submission
requirements  for  non-  automated  underwritten  loans  vary  depending  on the
borrower's  credit score. In 1999, the Stick With Triad program  represented 65%
of the  Company's  commitment  volume,  compared  to 59% in  1998.  The  Company
randomly and through adverse  selection audits lenders' files on loans submitted
under this program.

     The Company's delegated  underwriting program, in addition to the Company's
conservative risk management  strategies,  utilizes  extensive "quality control"
practices  including   reunderwriting,   reappraisal,   and  similar  procedures
following issuance of the policy. Standards for type of loan, property type, and
credit  history of the borrower are  established  consistent  with the Company's
risk strategy.  The program has allowed the Company to serve a greater number of
the larger,  well  established  mortgage  originators.  The Company's  delegated
underwriting  program accounted for 17% of commitments received in 1999 compared
to 16% in 1998 and 18% in 1997.  Many lenders who are not part of the  delegated
underwriting  process participate in the Stick With Triad underwriting  program.
The  performance of loans insured under the delegated  underwriting  program has
been comparable to the Company's non-delegated business.

     The  Company  utilizes  its  underwriting  skills  to  provide  a  contract
underwriting  service  to its  customers.  For a fee,  Triad  underwrites  fully
documented underwriting files for secondary market compliance, while at the same
time assessing the file for mortgage insurance, if applicable.  In addition, the


                                       11

<PAGE>


Company offers Fannie Mae's Desktop Originator and Desktop Underwriter,  as well
as the personnel to conduct the underwriting tasks, as a service to its contract
underwriting  customers.  The  Company  also  offers its  contract  underwriting
customers direct access to Freddie Mac's Loan Prospector.  These products, which
are designed to streamline and reduce costs in the mortgage origination process,
supply the Company's  customers  with fast and accurate  service  regarding loan
compliance  and Fannie  Mae's or Freddie  Mac's  decision  for loan  purchase or
securitization.

OTHER RISK MANAGEMENT

     Another  important  aspect of the Company's risk management is the tracking
of risk exposure in condominium projects. The Company's risk management computer
system  tracks the  exposure  in each  project and alerts the  underwriter  once
predetermined  limits are reached. The Company's computer system also identifies
certain exceptions in loan files that deserve special underwriter attention.

     The Company uses a comprehensive  audit plan designed to determine  whether
the  underwriting  decisions  being  made  are  consistent  with  the  policies,
procedures,  and expectations for quality as set forth by management.  All areas
of business activity which involve an underwriting  decision are included,  with
emphasis on new products, new procedures, contract underwritten loans, delegated
loans, new employees,  and new master  policyholders and branches of an existing
master policy holder. The process used to identify  categories of loans selected
for an audit begins with the  identification  and evaluation of certain  defined
and verifiable risk elements. Each loan is then tested against these elements to
identify loans which fail to meet prescribed policies or an identified norm. The
procedure allows the Company's management to identify concerns,  not only at the
loan level, but also portfolio  concerns which may exist within a given category
of business.

CLAIMS-PAYING ABILITY RATINGS

     Certain  national  mortgage  lenders  and a large  segment of the  mortgage
securitization market,  including Fannie Mae and Freddie Mac, generally will not
purchase high LTV  mortgages or  mortgage-backed  securities  unless the private
mortgage  insurance coverage on the mortgages has been issued by an insurer with
a  claims-paying  ability rating of at least "AA-" from Standard & Poor's Rating
Services,  a division of the McGraw-Hill  Companies,  Inc.  ("S&P"),  Fitch IBCA
("Fitch"),  or Duff & Phelps  Credit Rating Co. ("Duff & Phelps") or a financial
strength  rating from Moody's  Investor  Service  ("Moody's") of at least "Aa3."
Fannie Mae and Freddie Mac require  mortgage  guaranty  insurers to maintain two
ratings of "AA-" or better. Private mortgage insurers are not rated by any other
independent  nationally-recognized  insurance  industry  rating  organization or
agency (such as the A.M. Best Company).


                                       12

<PAGE>


     Triad has its claims-paying ability rated by S&P, Fitch, and Duff & Phelps.
These  ratings  are an  indication  to a  mortgage  insurer's  customers  of the
insurer's  present  financial  strength and its  capacity to pay future  claims.
Ratings are generally  considered an important  element in a mortgage  insurer's
ability to compete for new business. Triad is rated "AA" by S&P, Fitch, and Duff
& Phelps.  These  ratings  allow  Triad to compete on similar  risk-to-  capital
guidelines  as its  competitors.  Triad has not  sought  and does not  presently
intend to seek a financial strength rating from Moody's.

     S&P defines insurers rated "AA" as offering  excellent  financial  security
and having the capacity to meet policyholder  obligations that is strong under a
variety  of  economic  and  underwriting  conditions.  Fitch  defines  insurance
companies  rated "AA" as having a very  strong  claims-paying  ability and to be
only slightly more  susceptible  than  companies  rated "AAA" to exhibiting  any
weakening   of  financial   strength  due  to  adverse   business  and  economic
developments.  Duff & Phelps  defines  insurers rated "AA" as having a very high
claims-paying  ability with only modest risk which may vary  slightly  over time
due to economic and/or  underwriting  conditions.  Ratings from S&P, Fitch,  and
Duff & Phelps  are  modified  with a "+" or "-" sign to  indicate  the  relative
position of a company within its category.

     When assigning a  claims-paying  ability  rating,  S&P,  Fitch,  and Duff &
Phelps generally  consider:  (i) the specific risks associated with the mortgage
insurance  industry,  such as regulatory  climate,  market demand,  growth,  and
competition;  (ii) management depth,  corporate  strategy,  and effectiveness of
operations;  (iii) historical  operating results and expectations of current and
future performance;  and, (iv) long-term capital structure, the ratio of debt to
equity, the ratio of risk to capital, near-term liquidity, and cash flow levels,
as well as any reinsurance  relationships and the claims-paying  ability ratings
of such reinsurers.  Claims-paying ability ratings are based on factors relevant
to policyholders,  agents,  insurance brokers, and intermediaries.  Such ratings
are  not  directed  to the  protection  of  investors  and do not  apply  to any
securities issued by the Company.

     Rating agencies issue claims-paying  ability ratings based, in part, upon a
company's performance  sensitivity to various economic depression scenarios.  In
determining  capital  levels  required  to  maintain a  company's  claims-paying
ability rating,  the rating agencies allow the use of different forms of capital
including statutory capital,  reinsurance and debt. In January 1998, the Company
completed a $35 million  private  offering  of notes due January 15,  2028.  The
notes  are  rated  "A" by S&P and "A+" by Fitch.  The  Company  contributed  $25
million of the net proceeds  from the sale of the notes to Triad.  The effect of
the Company's contribution of $25 million to the capital of Triad was to improve
its risk-to- capital ratio and to provide  additional  capital considered in the
rating agency's depression models.

     S&P, Fitch,  and Duff & Phelps  periodically  review Triad's  claims-paying
ability, as they do with all rated insurers. Ratings can be withdrawn or changed
at any time by a rating agency.

                                       13

<PAGE>


REINSURANCE

     The use of reinsurance as a source of capital and as a risk management tool
is well established within the mortgage insurance industry. Reinsurance does not
legally  discharge an insurer from its primary  liability for the full amount of
the risk it insures,  although it does make the reinsurer  liable to the primary
insurer. There can be no assurance that the Company's reinsurers will be able to
meet their obligations under the reinsurance agreements.

     Certain  premiums and losses are assumed  from and ceded to  non-affiliated
insurance companies under various quota share reinsurance agreements. The ceding
agreement  principally  provides  the Company with  increased  capacity to write
business and achieve a more favorable  geographic  dispersion of risk. Less than
0.1% of Triad's risk in force at December 31, 1999, and direct premiums  written
in 1999 were ceded in quota share  arrangements  to  non-affiliated  reinsurance
companies.  In addition,  the Company reinsures  portions of the risk written on
loans  originated  by  certain  lenders  with  captive   reinsurance   companies
affiliated with such lenders.

     Pursuant to deeper coverage  requirements imposed by Fannie Mae and Freddie
Mac, certain loans eligible for sale to such agencies with a loan-to-value ratio
of over 90% require insurance with a coverage  percentage of 30%, in contrast to
the 25% coverage previously required.  Certain states limit the amount of risk a
mortgage  insurer may retain with  respect to coverage of an insured loan to 25%
of the claim  amount,  and,  as a result,  the deeper  coverage  portion of such
insurance must be reinsured.  Although changes by Fannie Mae and Freddie Mac are
expected to reduce how many loans are insured over 25%, the need for reinsurance
channels  is not  expected to change for Triad.  To  minimize  reliance on third
party  reinsurers  and to permit the Company to retain the  premiums and related
risk on deeper coverage business,  Triad reinsures this deeper coverage business
with its wholly-owned  subsidiary Triad Guaranty Assurance Corporation ("TGAC").
As of December 31, 1999,  TGAC had assumed  approximately  $63.5 million in risk
from Triad.

     Captive  mortgage  insurance has become  popular in the mortgage  insurance
market and a mortgage  insurer  must offer it to remain  competitive  within the
industry.  Triad entered the captive  reinsurance market in 1999 with the LEAPSM
(Lower Entry- Additional  Profitability)  program. The LEAP program is an excess
of loss mortgage  reinsurance  program that provides  lenders an  opportunity to
share in the  risk  and  return  of  mortgage  insurance  on  loans  the  lender
originates  or  services.  Under  LEAP,  the lender may elect a risk band with a
flexible entry and exit point. LEAP also permits cessions  significantly greater
than the 25% industry standard arrangements that existed prior to this program.

     The LEAP  program  allows the  lender to take  advantage  of the  Company's
innovative Capital GardSM program.  Capital Gard is an additional tool to manage
catastrophic  loss  risks on captive  excess of loss  structures.  Capital  Gard
permits  a  captive  reinsurer  to  spread  its  risk  to  other  non-affiliated


                                       14

<PAGE>


reinsurance  companies in the event of an economic  depression  just as property
and casualty  reinsurers  purchase  catastrophic  coverage to protect themselves
against severe natural  disasters.  The combination of the LEAP and Capital Gard
programs  offer   unmatched  risk   management   opportunities   with  increased
flexibility,  based on the  specific  needs  of each  individual  lender.  Ceded
premium under captive reinsurance  agreements represented 0.2% of direct written
premiums in 1999.

     The Company also has in place  reinsurance  agreements with  non-affiliated
reinsurers in association with certain of the Company's non-captive risk sharing
programs.  The reinsurance  agreements are excess of loss contracts  whereby the
reinsurer  will  indemnify the Company with respect to losses covered as defined
by the reinsurance  agreements.  In 1999,  1.1% of the Company's  direct written
premium was ceded to reinsurers under these agreements.

     At the end of 1999,  15.4% of Triad's  insurance  in force had been insured
under some type of  risk-sharing  arrangement  as  compared to 11.1% at year end
1998. Risk-sharing  arrangements  represented 22.9% of Triad's net new insurance
written in 1999.

     In November 1999, Triad formed Triad Re Insurance  Corporation ("Triad Re")
as a wholly-owned  sponsored captive  reinsurance  company domiciled in Vermont.
Triad Re was  capitalized  in February  2000,  with  regulatory  capital of $1.0
million. As of December 31, 1999, no risk had been ceded to Triad Re.

     The Company  continues to maintain excess of loss reinsurance  arrangements
designed to protect the Company in the event of a catastrophic  level of losses.
Throughout  1999,  Triad  maintained  $25 million of excess of loss  reinsurance
through a  non-affiliated  reinsurer.  In late 1999, Triad obtained access to an
additional $100 million of excess of loss reinsurance  coverage.  The additional
reinsurance  further  strengthens Triad's ability to weather an adverse economic
event and is beneficial in maintaining rating agency ratings.

DEFAULTS AND CLAIMS

DEFAULTS

     The claim process on private  mortgage  insurance begins with the insurer's
receipt  of  notification  from the lender of a default  on an  insured's  loan.
Default is defined in the primary  master  policy as the failure by the borrower
to pay,  when due, an amount at least equal to the  scheduled  monthly  mortgage
payment under the terms of the mortgage.  The master policy requires  lenders to
notify the Company of default on a mortgage payment within 10 days of either (i)
the date on which the  borrower  becomes four months in default or (ii) the date
on which  any  legal  proceeding  which  affects  the  loan has been  commenced,
whichever  occurs first.  Notification is required within 45 days of the default
if it occurs when the first payment is due. The incidence of default is affected
by a variety of  factors,  including  change in borrower  income,  unemployment,
divorce,   illness,   the  level  of  interest  rates,   and  general   borrower


                                       15

<PAGE>


creditworthiness.  Defaults that are not cured result in a claim to the Company.
Borrowers may cure defaults by making all delinquent loan payments or by selling
the property and satisfying all amounts due under the mortgage.

     The  following  table shows the number of loans  insured,  related loans in
default,  percentage  of  loans  in  default  (default  rate  as  of  the  dates
indicated),  dollar amount of insured loans in default,  dollar amount of direct
risk  (gross of  reinsurance)  with  respect to insured  loans in  default,  and
reserves per delinquent loan.

                               Default Statistics

<TABLE>
<CAPTION>

                                                                      December 31
                                                        1999       1998       1997       1996       1995
                                                        ----       ----       ----       ----       ----
<S>                                                  <C>        <C>        <C>        <C>        <C>
Number of insured loans in force.................... 108,623     97,222     82,682     62,334     49,791
Number of loans in default..........................     690        518        388        273        206
Percentage of loans in default (default rate).......   0.64%      0.53%      0.47%      0.44%      0.41%
Dollar amount of insured loans in default (000's)... $67,802    $50,882    $37,828    $25,253    $19,907
Dollar amount of direct risk with respect to
insured loans in default (000's).................... $18,108    $13,216     $9,249     $5,770     $4,071
Reserve per delinquent loan......................... $21,378    $23,442    $23,094    $23,097    $22,277

</TABLE>

CLAIMS

     Claims  result from  defaults  that are not cured.  The frequency of claims
does not  directly  correlate  to the  frequency  of defaults due in part to the
Company's  loss  mitigation  efforts  and the  borrower's  ability  to  overcome
temporary  financial  setbacks.  The likelihood  that a claim will result from a
default,  and the amount of such  claim,  principally  depend on the  borrower's
equity at the time of default and the  borrower's  (or the lender's)  ability to
sell the home for an amount  sufficient  to satisfy  all  amounts  due under the
mortgage,  as well as the effectiveness of loss mitigation  efforts.  Claims are
also affected by local housing prices, interest rates,  unemployment levels, the
housing  supply,  and the  borrower's  desire to avoid  foreclosure.  During the
default  period,  the Company works with the insured for possible early disposal
of underlying  properties  when the chance of the loan  reinstating  is minimal.
Such dispositions typically result in a reduced claim amount to the Company.

     Claim activity is not evenly spread through the coverage period. Relatively
few  claims  are  received  during  the first two years  following  issuance  of
insurance.  A  period  of  rising  claims  follows,  which,  based  on  industry
experience,  has  historically  reached its highest  level in the third  through
sixth  years  after  the loan  origination.  Thereafter,  the  number  of claims
received  has  historically  declined at a gradual  rate,  although  the rate of
decline  can be  affected  by  economic  and other  conditions.  There can be no
assurance that the historical pattern of claims will continue in the future.

                                       16

<PAGE>

     Generally,  the  Company  does not pay a claim for loss  under  the  master
policy  if the  application  for  insurance  for the loan in  question  contains
fraudulent information, material omissions. or misrepresentations which increase
the risk  characteristics of the loan. The Company's master policy also excludes
any cost or  expense  related  to the  repair or remedy of any  physical  damage
(other than "normal wear and tear") to the property  collateralizing  an insured
mortgage  loan.  Such  physical  damage  may  be  caused  by  accident,  natural
occurrence or otherwise.

     Under the terms of the  master  policy,  the lender is  required  to file a
claim with the  Company no later  than 60 days  after it has  acquired  good and
marketable  title to the  underlying  property  through  foreclosure.  A primary
insurance claim amount includes (i) the amount of unpaid principal due under the
loan;  (ii)  the  amount  of  accumulated  delinquent  interest  due on the loan
(excluding late charges) to the date of claim filing; (iii) expenses advanced by
the  insured  under the terms of the  master  policy,  such as hazard  insurance
premiums,  property maintenance expenses and property taxes to the date of claim
filing;  and, (iv) certain  foreclosure and other expenses,  including attorneys
fees.  Such claim  amount is subject to review and  possible  adjustment  by the
Company.  An  average of about 12 months  elapses  from the date of default to a
payment of claim on an uncured default.  The Company's experience indicates that
the claim  amount on a policy  generally  ranges from 110% to 115% of the unpaid
principal amount of a foreclosed loan.

     Within 60 days after the claim has been  filed,  the Company has the option
of either (i) paying the coverage  percentage  specified on the  certificate  of
insurance (usually 15% to 30% of the claim), with the insured retaining title to
the underlying property and receiving all proceeds from the eventual sale of the
property or (ii) paying 100% of the claim  amount in exchange  for the  lender's
conveyance of good and marketable title to the property to the Company, with the
Company selling the property for its own account. The Company attempts to choose
the claim  settlement  option  which costs the least.  In  general,  the Company
settles claims by paying the coverage  percentage of the claim amount.  In 1999,
the Company  exercised  the option to acquire one  property.  This  property was
valued at  $145,515  on  December  31,  1999,  which is the lower of cost or net
realizable  value.  In 1998,  the Company did not exercise the option to acquire
any property and did not own any real estate acquired through claim  settlements
at December 31, 1998.

LOSS MITIGATION

     Once a default  notice is  received,  the Company  attempts to mitigate its
loss.  Through proactive  intervention  with insured lenders and borrowers,  the
Company has been  successful  in reducing  the number and severity of its claims
for loss. Loss mitigation techniques include  pre-foreclosure sales, advances to
assist distressed  borrowers who have suffered a temporary economic setback, and
the use of new repayment schedules, refinances, loan modifications,  forbearance
agreements, and deeds-in-lieu of foreclosure.  Such mitigation efforts typically
result in a savings to the Company over the percentage  coverage  amount payable
under the certificate of insurance. Through loss mitigation efforts, the Company


                                       17
<PAGE>


has paid out only 67% of its  potential  exposure  on claims  paid  ever-to-date
through December 31, 1999.

LOSS RESERVES

     The Company  establishes  reserves to provide  for the  estimated  costs of
settling claims with respect to loans reported to be in default and estimates of
loans in  default  which  have  not  been  reported.  Consistent  with  industry
accounting  practices,  the Company does not establish  loss reserves for future
claims on insured loans which are not currently in default. Although the Company
believes that its overall  reserve  levels at December 31, 1999, are adequate to
meet its future  obligations,  due to the inherent  uncertainty of the reserving
process there can be no assurance that its reserves will prove to be adequate to
cover ultimate loss developments.

     In  determining  the  liability for unpaid  losses  related to  outstanding
defaults,  the Company  establishes loss reserves on a case-by-case  basis using
historical experience and by making various assumptions and judgements about the
ultimate  amount to be paid on loans in  default.  The amount  reserved  for any
particular  loan is  dependent  upon the status of the loan as  reported  by the
servicer of the insured loan. As the default  progresses  closer to foreclosure,
the  amount of loss  reserve  for that  particular  loan will be  increased,  in
stages,  to  approximately  120%  of  the  Company's  exposure,  which  includes
claims-related  expenses.  The  Company  periodically  reviews  and  adjusts its
reserve  estimates  to  address  changes  in  economic  conditions  as  well  as
developments in its loss experience.

     The Company also establishes reserves to provide for the estimated costs of
settling  claims,  including  legal and other  fees,  and  general  expenses  of
administering  the claims  settlement  process  ("loss  adjustment  expenses" or
"LAE")  and for  losses  and loss  adjustment  expenses  incurred  arising  from
defaults  which  have  occurred,  but which  have not yet been  reported  to the
insurer ("Incurred But Not Reported" or "IBNR").

     The  Company's  reserving  process is based upon the  assumption  that past
experience,  adjusted for the anticipated effect of current economic  conditions
and projected future economic trends, provides a reasonable basis for estimating
future events.  However,  estimation of loss reserves is a difficult and inexact
process. In addition,  economic conditions that have affected the development of
the loss reserves in the past may not necessarily affect development patterns in
the future in either a similar manner or degree. Due to the inherent uncertainty
in estimating reserves for losses and loss adjustment expenses,  there can be no
assurance  that the reserves  will prove to be adequate to cover  ultimate  loss
developments  on loans in default,  currently  or in the future.  The  Company's
profitability and financial  condition could be adversely affected to the extent
that the Company's  estimated reserves are insufficient to cover losses on loans
in default.


                                       18

<PAGE>

     The following table represents a reconciliation of the beginning and ending
loss reserves (net of reinsurance) for the periods indicated.

          Reconciliation of Losses and Loss Adjustment Expense Reserves
<TABLE>
<CAPTION>
                                                                         Year Ended December 31
                                                                             (in thousands)
                                                            1999       1998       1997        1996        1995
                                                            ----       ----       ----       ------      -----
<S>                                                      <C>          <C>        <C>        <C>        <C>
Reserve for losses and LAE, net of related
 reinsurance recoverables, at beginning of year......    $ 12,116     $ 8,909    $ 5,974    $ 3,703    $ 2,466

Add losses and LAE incurred in respect of
  defaults occurring in:
     Current year (1)................................       9,322       7,953      6,023      4,673      3,191
     Prior years (1) (2).............................      (2,211)       (944)      (846)    (1,394)      (974)
                                                         --------     -------    -------    -------    -------
Total incurred losses and LAE........................       7,111       7,009      5,177      3,279      2,217

Deduct losses and LAE paid in respect of
  defaults occurring in:
     Current year....................................         236         267        210        167        216
     Prior years.....................................       4,268       3,535      2,032        841        764
                                                         --------     -------    -------    -------    -------
Total payments.......................................       4,504       3,802      2,242      1,008        980

Reserve for losses and LAE, net of the related
 reinsurance recoverables, at end of year ...........      14,723      12,116      8,909      5,974      3,703

Reinsurance recoverables on unpaid losses and
 LAE, at the end of year ............................          28          27         51        331        886
                                                         --------     -------    -------    -------    -------

Reserve for unpaid losses and LAE, before
deduction of reinsurance recoverables on unpaid
losses, at end of year...............................    $ 14,751     $12,143    $ 8,960    $ 6,305    $ 4,589
                                                         ========     =======    =======    =======    =======
-----------
<FN>
(1) Includes  loss and LAE  reserves  relating to loans which are in default but
    for which default notices have not been received.
(2) Indicates a cumulative  redundancy in loss reserves at the beginning of each
    period. Redundancies result from overestimating ultimate claim amounts.
</FN>
</TABLE>

     The top  section of the above  table shows  losses  incurred  on  insurance
policies  with  respect to  defaults  which  occurred  in the  current and prior
periods.  The amount of losses  incurred  relating to defaults  occurring in the
current period represents the estimated amount to be ultimately paid on defaults
occurring in that  period.  The amount of losses  incurred  relating to defaults
occurring in prior periods  represents an adjustment  made in the current period
for  defaults  which were  included in the loss  reserve at the end of the prior
period.

     The middle  section  of the above  table  shows  claims  paid on  insurance
policies with respect to defaults  which  occurred in the current  period and in
prior periods,  respectively.  Since it takes, on average, about 12 months for a
default which is not cured to eventually  develop into a paid claim, most losses
paid relate to defaults occurring in prior periods.


                                       19

<PAGE>


ANALYSIS OF DIRECT RISK IN FORCE

     A  foundation  of  the  Company's   business  strategy  is  proactive  risk
selection.  The Company  analyzes its  portfolio in a number of ways to identify
any  concentrations  of  risk or  imbalances  in risk  dispersion.  The  Company
believes that the quality of its insurance  portfolio is affected  predominantly
by (i) the quality of loan originations  (including the strength of the borrower
and the  marketability  of the  property);  (ii) the attributes of loans insured
(including LTV ratio,  purpose of the loan,  type of loan instrument and type of
underlying  property  securing  the  loan);  (iii)  the  seasoning  of the loans
insured;  (iv) the geographic dispersion of the underlying properties subject to
mortgage insurance; and, (v) the quality and integrity of lenders from which the
Company receives loans to insure.



                                       20

<PAGE>



LENDER AND PRODUCT CHARACTERISTICS

         The  following  table  reflects the  percentage of direct gross risk in
force  (as  determined  on the  basis of  information  available  on the date of
mortgage origination) by the categories indicated on December 31, 1999 and 1998:

Direct Risk in Force

                                                                 December 31
Product Type:                                                   1999      1998
                                                                ----      ----

Primary..................................................       100.0%    100.0%
Pool.....................................................         0.0%      0.0%
                                                                -----     -----
Total....................................................       100.0%    100.0%
                                                                =====     =====

Direct Primary Risk in Force

                                                                   December 31
                                                                  1999     1998
                                                                  -----    ----
Direct Risk in Force (dollars in millions)................       $3,223   $2,777
Lender Concentration:
Top 10 lenders (by original applicant)....................        31.0%    31.7%
LTV:
95.01% and above..........................................         2.0%     1.0%
90.01% to 95.00%..........................................        50.0%    50.4%
90.00 and below...........................................        48.0%    48.6%
                                                                 -----    -----
Total.....................................................       100.0%   100.0%
                                                                 =====    =====
Loan Type:
Fixed.....................................................        94.5%    92.4%
ARM (positive amortization) (1)...........................         5.5%     7.6%
ARM (potential negative amortization) (2).................         0.0%     0.0%
ARM (scheduled negative amortization) (2).................         0.0%     0.0%
Other.....................................................         0.0%     0.0%
                                                                 -----    -----
Total.....................................................       100.0%   100.0%
                                                                 =====    =====
Mortgage Term:
15 years and under........................................         6.8%     7.0%
Over 15 years.............................................        93.2%    93.0%
                                                                 -----    -----
Total.....................................................       100.0%   100.0%
                                                                 =====    =====
Property Type:
Noncondominium (principally single-family detached).......        95.6%    95.5%
Condominium...............................................         4.4%     4.5%
                                                                 -----    -----
Total.....................................................       100.0%   100.0%
                                                                 =====    =====
Occupancy Status:
Primary residence.........................................        98.6%   100.0%
Second home...............................................         1.1%     0.0%
Nonowner occupied.........................................         0.3%     0.0%
                                                                 -----    -----
Total.....................................................       100.0%   100.0%
                                                                 =====    =====
Mortgage Amount:
$200,000 or less..........................................        92.5%    93.9%
Over $200,000.............................................         7.5%     6.1%
                                                                 -----    -----
Total.....................................................       100.0%   100.0%
                                                                 ======   =====

(1)  Refers to loans where payment adjustments are the same as mortgage interest
     rate adjustments.

(2)  Scheduled  negative  amortization is defined by the Company as the increase
     in loan balance that will occur if interest rates do not change. Loans with
     potential negative amortization will not have increasing principal balances
     unless interest rates increase.

                                       21
<PAGE>


     One of the most important  determinants  of claim incidence is the relative
amount of the borrower's equity in the home (which at the time of origination is
the down payment).  For the industry as a whole,  historical  evidence indicates
that  claim  incidence  on loans  having a LTV ratio in excess of 90% is greater
than the claim incidence on loans with LTV ratios equal to or less than 90%. The
Company  believes  that the  higher  premium  rates it charges on these high LTV
loans adequately reflects the additional risk.

     Approximately 2% of the Company's risk in force is comprised of the 97% LTV
product  ("97s"),  which  is  offered  primarily  to  low  and  moderate  income
borrowers.  The Company  believes  that these  "affordable  housing"  loans have
higher risks than its other insured  business and has often attracted  borrowers
with weak  credit  histories,  generally  resulting  in higher loss  ratios.  In
keeping  with the  Company's  established  risk  strategy,  the  Company has not
aggressively  solicited  this  segment of the  industry.  The  Company  does not
routinely delegate the underwriting of its 97% LTV product.

     The Company actively pursues only positively  amortizing ARMs with industry
standard  caps.  Payments  on  these  loans  adjust  fully  with  interest  rate
adjustments.  To date,  the  performance  of the  Company's  ARM  loans has been
consistent  with that of the fixed rate  portfolio.  However,  since  historical
claim  frequency data on ARMs has not yet been tested during a prolonged  period
of economic  stress,  there can be no assurance that claim frequency on ARMs may
not eventually be higher,  particularly during a period of rising interest rates
combined with decreasing housing prices. In its normal course of operations, the
Company's  existing  underwriting  policy does not permit  coverage of ARMs with
"scheduled" negative  amortization.  ARMs with "potential" negative amortization
characteristics  due to  differences  in the timing of interest rate and payment
changes are accepted under limited conditions.

     Historical  evidence  indicates  that higher priced  properties  experience
wider   fluctuations  in  value  than  moderately   priced   residences.   These
fluctuations  exist primarily  because there is a much smaller pool of qualified
buyers for higher  priced  homes  which,  in turn,  reduces  the  likelihood  of
achieving a quick sale at fair market value when necessary to avoid a default.

     The Company believes that 15-year  mortgages  present a lower level of risk
than 30-year mortgages, primarily as a result of the faster amortization and the
more rapid  accumulation  of borrower equity in the property.  Accordingly,  the
Company  charges lower  premium rates on these loans than on comparable  30-year
mortgages.

     The Company believes that the risk of claim is also affected by the type of
property  securing  the  insured  loan.  In  management's   opinion,   loans  on
single-family  detached housing are subject to less risk of claim incidence than
loans on other types of properties.  The Company  believes that attached housing
types, particularly condominiums and cooperatives,  are a higher risk because in
most areas condominiums and cooperatives tend to be more susceptible to downward
fluctuations in value than single family detached  dwellings in the same market.
The term "single-family"  applies to all one-to-four unit dwellings and includes
detached and attached  townhouse units with fee simple ownership,  condominiums,
and cooperatives. Triad does not insure cooperatives.

                                       22

<PAGE>


     Loans on primary  residences  that were owner  occupied at the time of loan
origination  constituted  approximately  99% of the  Company's  risk in force at
December 31, 1999. Because management  believes that loans on non-owner occupied
properties  represent a  substantially  higher risk of claim  incidence  and are
subject to greater value declines than loans on primary homes,  the Company does
not actively pursue these loans.

     The  Company's  book of  business  is less  mature than that of the private
mortgage  insurance industry as a whole, with the Company's direct risk in force
having a weighted  average life of 2.8 years at December 31, 1999, and 2.4 years
at December 31, 1998,  compared to an estimated industry average of 3.7 years at
December 31, 1999.

     The  following  table  shows the  percentage  of direct risk in force as of
December 31, 1999,  for policies  written from 1988 through 1999 by the Company,
as well as the  cumulative  loss ratio  (calculated  as losses  paid  divided by
premiums  written,  in each case for a  particular  certificate  year) which has
developed,  through December 31, 1999, for the policies written during the years
indicated and excludes the effects of reinsurance:




    Certificate                          Percent   Cumulative Ratio of Losses
       Year     Direct Risk in Force    of Total   Paid to Premiums Written(1)
       ----     --------------------    --------   ---------------------------
                    (in millions)
       1988         $     0.7              0.0%               14.4%
       1989               1.0              0.0                24.1
       1990               2.3              0.1                17.9
       1991               8.8              0.3                11.5
       1992              34.8              1.1                 8.2
       1993              99.1              3.1                 5.1
       1994              89.1              2.7                 7.7
       1995             154.0              4.8                 7.9
       1996             243.9              7.6                 7.0
       1997             536.7             16.6                 4.1
       1998           1,086.1             33.7                 0.3
       1999             966.0             30.0                 0.0
                       ------            -----
      Total         $ 3,222.5            100.0%
                    =========            =====
-------------------------
(1) Claim activity is not spread evenly  throughout  the coverage  period of the
book  of  business.  Based  on  the  Company's  and  the  industry's  historical
experience,  claims  incidence is highest in the third through sixth years after
loan origination,  and relatively few claims are paid during the first two years
after  loan  origination.   Thus,  the  cumulative  loss  experience  of  recent
certificate years is not indicative of ultimate losses.

                                       23

<PAGE>


GEOGRAPHIC DISPERSION

     The following  tables reflect the percentage of direct risk in force on the
Company's  book of business (by location of property) for the top ten states and
the top ten metropolitan statistical areas ("MSAs") as of December 31, 1999. The
Company continues to diversify its risk in force geographically.  The percentage
of the  Company's  direct risk in force by top ten states  declined to 69.4% for
1999 compared to 70.6% and 73.9% for 1998 and 1997, respectively. The percentage
of the  Company's  direct  risk in  force by top ten  MSAs  was  36.3%  for 1999
compared to 33.0% and 36.8% for 1998 and 1997, respectively.

               Top Ten States                                   Top Ten MSAs
               --------------                                   ------------
                 December 31                                     December 31
                    1999                                             1999
                    ----                                             ----
California          11.5%              Chicago, IL                   11.0%
Illinois            11.4               Los Angeles, CA                4.6
Georgia              9.1               Washington, DC                 4.0
Florida              7.8               Atlanta, GA                    3.8
Texas                7.4               San Francisco/Oakland, CA      2.5
North Carolina       6.3               Philadelphia, PA               2.5
Virginia             4.6               Houston/Galveston, TX          2.3
Pennsylvania         4.1               Phoenix, AZ                    2.0
Colorado             3.8               Charlotte/Gastonia, NC         1.9
Arizona              3.4               Dallas/Forth Worth, TX         1.7
                   -----                                             ----
Total               69.4%              Total                         36.3%
                   =====                                             ====

     While the Company continues to diversify its risk in force  geographically,
a prolonged regional  recession,  particularly in its high concentration  areas,
such as the  Southeastern,  Western,  Middle  Atlantic,  and  upper  Mid-Western
states, or a prolonged national economic recession, could significantly increase
loss development.

INVESTMENT PORTFOLIO

     Income  from  its  investment  portfolio  is one of the  Company's  primary
sources of cash flow to support its operations and claims payments.  The Company
has an investment advisory agreement with CML for management of its portfolio.

     The Company  follows an investment  policy which  requires:  (i) 80% of its
investment portfolio (together with cash assets) to consist of cash,  short-term
investments,  and debt securities (including redeemable preferred stocks) which,
at the date of purchase,  were rated investment grade by a nationally recognized

                                       24

<PAGE>


rating  agency  (e.g.,"BBB-"  or  better  by S&P) and  (ii) at least  50% of its
investment  portfolio  (together  with cash  assets) to  consist  of cash,  cash
equivalents,  and securities  which, at the date of purchase,  were rated one of
the two highest  investment grades by a nationally  recognized rating agency. At
December 31, 1999, the Company's  total  investment  portfolio had a fair market
value of $191.6 million and did not include any real estate or mortgage loans.

     Liquidity  is  sought  through  cash  equivalent  investments  and  through
diversification  and  investment  in  publicly  traded  securities.  The Company
attempts  to  maintain a level of  liquidity  and a duration  in its  investment
portfolio  consistent  with  its  business  outlook  and  the  expected  timing,
direction,  and degree of changes in interest rates. As of December 31, 1999, no
investment  in  the  securities  of any  single  issuer  (other  than  the  U.S.
government and its agencies) exceeded 2% of the Company's investment portfolio.

     The  Company's  investment  policies and  strategies  are subject to change
depending upon regulatory,  economic,  and market conditions and the existing or
anticipated  financial condition and operating  requirements,  including the tax
position, of the Company.

     The following table shows the results of the Company's investment portfolio
for the periods indicated:

                          INVESTMENT PORTFOLIO RESULTS
<TABLE>
<CAPTION>
                                                 1999             1998            1997           1996          1995
                                                 ----             ----            ----           ----          ----
<S>                                          <C>              <C>             <C>             <C>           <C>
Average investments (1).................     $183,987,661     $151,711,923    $103,804,750    $89,577,031   $79,253,289

Pre-tax net investment income...........      $10,545,663       $9,289,026      $6,234,142     $5,446,672    $4,836,461

Effective pre-tax yield (1).............             5.7%             6.1%            6.0%           6.1%          6.1%

Tax-equivalent yield (2)................             7.7%             7.9%            8.0%           7.7%          7.5%

Pre-tax realized gain (loss)
on sale of investments..................       $1,153,191         $880,502         $34,330     $(162,385)      $172,992
-------------------------
<FN>
(1) Based on historical cost adjusted for  amortization and accretion of premium
    and discount.
(2) Based on book value and the Company's marginal tax rate.
</FN>
</TABLE>

                                       25

<PAGE>



     The diversification of the Company's  investment  portfolio at December 31,
1999, is shown in the table below:

                      INVESTMENT PORTFOLIO DIVERSIFICATION

                                                    December 31, 1999
                                        ----------------------------------------
                                        Amortized Cost   Fair Value   Percent(1)
                                        --------------   ----------   ----------
Available-for-sale securities:
  Fixed maturity securities:

   U.S. government obligations.......... $  7,106,820    $  7,103,956     3.7%

   Mortgage-backed bonds................    1,112,041       1,143,066      0.6

   State and municipal bonds............  124,379,747     117,836,936     61.5

   Industrial & miscellaneous...........   41,380,256      38,495,458     20.1
                                         ------------    ------------
       Total fixed maturities...........  173,978,864     164,579,416

 Equity securities......................   10,952,390      13,075,648      6.8
                                         ------------    ------------

  Total available-for-sale securities...  184,931,254     177,655,064

Short-term investments.................   13,908,666      13,908,666      7.3
                                         ------------    ------------     -----
                                         $198,839,920    $191,563,730    100.0%
                                         ============    ============    ======
----------------
(1)  Percentage of fair value.

     The following table shows the scheduled maturities at December 31, 1999, of
the fixed maturity securities held in the Company's investment portfolio:

                     INVESTMENT PORTFOLIO SCHEDULED MATURITY

                                                 December 31, 1999
                                           ----------------------------
                                            Fair Value          Percent
                                            ----------          -------
One year or less.........................  $  3,614,071           2.2%

After one year through five years........    20,865,314          12.7

After five years through ten years.......    25,138,329          15.3

After ten years though twenty years......    86,790,318          52.7

After twenty years.......................    27,028,318          16.4

Mortgage-backed securities (1)...........     1,143,066           0.7
                                            -----------         -----
         Total...........................  $164,579,416         100.0%
                                           ============         =====

(1)Substantially  all of these  securities  are  guaranteed  by U.S.  Government
     Agencies.

                                       26
<PAGE>

         The  following  table  shows the  ratings of the  Company's  investment
portfolio as of December 31, 1999:

                         INVESTMENT PORTFOLIO BY RATING

                                                          December 31, 1999
                                                      -------------------------
Rating(1)                                              Fair Value       Percent
---------                                              ----------       -------

Fixed maturities:
         U.S. Treasury and U.S. agency bonds.....    $   8,247,022         5.0%
         AAA.....................................       54,485,984        33.1
         AA......................................       25,252,960        15.4
         A.......................................       35,638,813        21.7
         BBB.....................................       21,388,071        13.0
         BB......................................        7,792,717         4.7
         B.......................................        5,602,196         3.4
         C.......................................          126,000         0.1
         D.......................................          383,085         0.2
         NR......................................        5,662,568         3.4
                                                     -------------       -----
              Total fixed maturities.............    $ 164,579,416       100.0%
                                                     =============       =====

Equities:
         AAA.....................................    $     491,250         3.8%
         AA......................................          471,444         3.6
         A.......................................        9,255,479        70.8
         BBB.....................................          956,255         7.3
         BB......................................                0         0.0
         B.......................................        1,901,220        14.5
                                                     -------------       -----
             Total equities......................    $  13,075,648       100.0%
                                                     =============       =====
Total Portfolio..................................    $ 177,655,064
                                                     =============
                            -------------------------
(1) Current ratings as assigned by the NRSRO (Nationally  Recognized Statistical
Rating  Organization).  The NRSRO includes the following  nationally  recognized
rating agencies: S&P, Moody's, Duff & Phelps, and Fitch.

                                       27

<PAGE>

REGULATION

DIRECT REGULATION

     The Company's insurance subsidiaries are subject to comprehensive, detailed
regulation,  principally for the protection of policyholders and their borrowers
rather than for the benefit of investors,  by the insurance  departments  of the
various states in which each insurer is licensed to transact business.  Although
their scope varies by state,  state insurance laws in general grant broad powers
to supervisory  agencies or officials to examine  companies and to enforce rules
or exercise discretion touching almost every significant aspect of the insurance
business. These include the licensing of companies to transact business,  claims
handling practices,  reinsurance  requirements,  varying degrees of control over
premium  rates,  the  forms  and  policies   offered  to  customers,   financial
statements, periodic financial reporting, permissible investments, and adherence
to financial  standards  relating to  statutory  surplus,  dividends,  and other
criteria  of solvency  intended to assure the  satisfaction  of  obligations  to
policyholders.

     All states have enacted legislation that requires each insurance company in
a holding company system to register with the insurance  regulatory authority of
its  state  of  domicile  and  furnish  to the  regulator  financial  and  other
information  concerning the operations of companies  within the holding  company
system that may  materially  affect the  operations,  management,  or  financial
condition of the insurers within the system.  Generally, all transactions within
a holding  company system between an insurer and its affiliates must be fair and
reasonable  and the insurer's  statutory  policyholders'  surplus  following any
transaction  with an  affiliate  must  be both  reasonable  in  relation  to its
outstanding  liabilities  and adequate for its needs.  Most states also regulate
transactions  between insurance  companies and their parents and/or  affiliates.
There can be no assurance  that state  regulatory  requirements  will not become
more stringent in the future and have an adverse effect on the Company.

     Because  the  Company  is an  insurance  holding  company  and  Triad is an
Illinois  domiciled  insurance  company,  the Illinois  insurance laws regulate,
among other  things,  certain  transactions  in the  Company's  Common Stock and
certain transactions between Triad and the Company or affiliates.  Specifically,
no person may,  directly or indirectly,  offer to acquire or acquire  beneficial
ownership of more than 10% of any class of outstanding securities of the Company
or its  subsidiaries  unless such person files a statement  and other  documents
with the  Illinois  Director  and  obtains the  Director's  prior  approval.  In
addition,  material transactions between Triad and the Company or affiliates are
subject to certain  conditions,  including  that they be "fair and  reasonable."
These  restrictions  generally apply to all persons  controlling or under common
control with the insurance  companies.  "Control" is presumed to exist if 10% or
more  of  Triad's  voting  securities  is  owned  or  controlled,   directly  or
indirectly,  by a person, although the Illinois Director may find that "control"
in fact does or does not exist where a person  owns or controls  either a lesser
or greater  amount of  securities.  Other  states in addition  to  Illinois  may
regulate  affiliated  transactions and the acquisition of control of the Company
or its insurance subsidiaries.

                                       28

<PAGE>


     Triad is required by Illinois  insurance  laws to provide for a contingency
reserve in an amount equal to at least 50% of earned  premiums in its  statutory
financial statements.  Such reserves must be maintained for a period of 10 years
except  in  circumstances   where  high  levels  of  losses  exceed   regulatory
thresholds.  The contingency reserve,  designed to provide a cushion against the
effect of adverse economic cycles,  has the effect of reducing statutory surplus
and  restricting  dividends and other  distributions  by Triad.  At December 31,
1999, Triad had statutory  policyholders' surplus of $94.6 million and statutory
contingency reserve of $113.8 million. At December 31, 1998, Triad had statutory
policyholders'  surplus of $89.5 million and a statutory  contingency reserve of
$81.6 million.  Triad's  statutory  earned surplus was $10.9 million at year end
1999 versus $5.8 million at year end 1998,  reflecting  growth in statutory  net
income greater than the increase in the statutory contingency reserve.

     The insurance  laws of Illinois  provide that Triad may pay dividends  only
out of statutory earned surplus as of the end of the preceding calendar year and
further establish  standards  limiting the maximum amount of dividends which may
be paid without prior approval by the Illinois  Director.  Under such standards,
Triad may pay dividends  during any 12-month  period equal to the greater of (i)
10% of the  preceding  year-end  statutory  policyholders'  surplus  or (ii) the
preceding year's net income. In addition,  insurance regulatory authorities have
broad discretion to limit the payment of dividends by insurance companies.  As a
mortgage  guaranty  insurer,  Triad is required by  Illinois  insurance  laws to
provide  a  contingency  reserve.  The  contingency  reserve  has the  effect of
reducing statutory surplus and restricting  dividends and other distributions by
Triad.

     Although  not  subject  to a rating  law in  Illinois,  premium  rates  for
mortgage  insurance  are  subject  to  regulation  in  most  states  to  protect
policyholders against the adverse effects of excessive,  inadequate, or unfairly
discriminatory rates and to encourage competition in the insurance  marketplace.
Any increase in premium rates must be  justified,  generally on the basis of the
insurer's loss  experience,  expenses,  and future trend  analysis.  The general
mortgage default experience may also be considered.

     TGAC was organized as a subsidiary of Triad under the insurance laws of the
state of Illinois in December 1994,  and as an Illinois  domiciled  insurer,  is
subject to all Illinois insurance regulatory requirements applicable to Triad.

     Triad Re was organized as a subsidiary of Triad under the insurance laws of
the state of Vermont in November 1999, and as a Vermont  domiciled  insurer,  is
subject to Vermont insurance regulatory requirements.

     Triad,  TGAC, and Triad Re are subject to examination of its affairs by the
insurance  departments of each of the states in which it is licensed to transact
business.  The Illinois  Insurance  Director and Vermont Insurance  Commissioner
periodically conduct financial  examinations of insurance companies domiciled in
their states. The most recent examinations of Triad and TGAC, were issued by the
Illinois  Insurance  Department  on  February  3, 2000,  and  covered the period

                                       29
<PAGE>


January 1, 1995,  through  December 31, 1998. No material  recommendations  were
made as a result of these examinations.

     A number of states  generally  limit the amount of insurance risk which may
be written by a private  mortgage  insurer to  twenty-five  times the  insurer's
total  policyholders'  surplus.  This  restriction  is  commonly  known  as  the
"risk-to-capital" requirement.

     Mortgage  insurers are  generally  restricted by state  insurance  laws and
regulations to writing  residential  mortgage guaranty  insurance business only.
This restriction  generally  prohibits Triad from using its capital resources in
support of other types of insurance  and restricts  its  noninsurance  business.
However,  noninsurance  businesses of the Company would not generally be subject
to regulation under state insurance laws.

     Regulation of reinsurance varies by state. Except for Illinois,  Wisconsin,
New York,  Ohio, and  California,  most states have no special  restrictions  on
reinsurance  that would apply to private  mortgage  insurers other than standard
reinsurance   requirements   applicable  to  property  and  casualty   insurance
companies.  Certain restrictions,  including reinsurance trust fund or letter of
credit  requirements,  apply under Illinois law to domestic  companies and under
the laws of several  other states to any  licensed  company  ceding  business to
unlicensed  reinsurers.  If a reinsurer is not admitted or approved, the company
doing business with the reinsurer cannot take credit in its statutory  financial
statements  for the risk  ceded to such  reinsurer  absent  compliance  with the
reinsurance security requirements.  In addition, some states in which Triad does
business have limited  private  mortgage  insurers to a maximum policy  coverage
limit of 25% of the  insured's  claim amount and require  coverages in excess of
25% to be reinsured through another licensed mortgage insurer.

     The National  Association  of Insurance  Commissioners  ("NAIC")  adopted a
risk-based  capital  ("RBC")  formula  designed  to  help  regulators   identify
property/casualty  insurers  in  need of  additional  capital.  The RBC  formula
establishes  minimum  capital  needs based upon risks  applicable  to individual
insurers, including asset risks, off balance sheet risks (such as guarantees for
affiliates  and contingent  liabilities),  and credit risks (such as reinsurance
ceded  and  receivables).  The NAIC and the  Illinois  Department  of  Insurance
currently  do not require  mortgage  guaranty  insurers to file RBC  analysis in
their annual statements.

     As the dominant  purchasers and sellers of conventional  mortgage loans and
beneficiaries of private mortgage guaranty insurance, Freddie Mac and Fannie Mae
impose  requirements on private mortgage  insurers in order for such insurers to
be  eligible  to insure  loans  sold to such  agencies.  Freddie  Mac's  current
eligibility  requirements  impose  limitations  on the  type  of  risk  insured,
standards for the geographic and customer  diversification  of risk,  procedures
for  claims  handling,   acceptable   underwriting   practices,   and  financial
requirements  which generally  mirror state insurance  regulatory  requirements.
These  requirements  are  subject to change from time to time and Freddie Mac is
currently  considering  modifications  to its existing  eligibility  guidelines.
Fannie Mae also has eligibility requirements, although such requirements are not
published. Triad is an approved mortgage insurer for both Freddie Mac and Fannie

                                       30

<PAGE>


Mae and meets all eligibility requirements.  There can be no assurance, however,
that such  requirements will not change or that Triad will continue to meet such
requirements.  In  addition,  to the extent  Fannie Mae or Freddie  Mac  assumes
default  risk for itself  that  would  otherwise  be  insured,  changes  current
guarantee fee arrangements,  allows  alternative credit  enhancement,  alters or
liberalizes underwriting guidelines on low down payment mortgages they purchase,
or otherwise  changes its business  practices or processes  with respect to such
mortgages, private mortgage insurers may be affected.

     Government  Sponsored  Enterprises  (GSE)  Fannie Mae and  Freddie Mac both
accept  reduced  mortgage  insurance  coverage  from lenders that deliver  loans
approved by the GSEs' automated underwriting  services,  Desktop Underwriter and
Loan Prospector, respectively. Generally, Fannie Mae's and Freddie Mac's reduced
mortgage insurance coverage options provide for: (i) across-the-board reductions
in required MI coverage on 30-year  fixed-rate loans recommended for approval by
GSE's  automated  underwriting  services  to the levels in effect in 1994;  (ii)
reduction in required MI coverage,  for loans with only a 5% down payment (a 95%
LTV),  from 30% to 25% of the mortgage loan covered by MI; and, (iii)  reduction
in required  MI  coverage,  for loans with a 10% down  payment (a 90% LTV loan),
from 25% to 17% of the mortgage loan covered by MI. In addition,  the GSE's have
implemented  other  programs that further reduce MI coverage upon the payment of
an additional fee by the lender.  Under this option, a 95% LTV loan will require
18% of the mortgage loan to have mortgage insurance coverage.  Similarly,  a 90%
LTV loan will require 12% of the mortgage  loan to have mortgage  insurance.  In
order for the home buyer to have MI at these levels,  such loans would require a
payment at closing or a higher note rate.

     Certain  national  mortgage  lenders  and a large  segment of the  mortgage
securitization market,  including Fannie Mae and Freddie Mac, generally will not
purchase  mortgages or  mortgage-backed  securities  unless the private mortgage
insurance on the  mortgages  has been issued by an insurer with a  claims-paying
ability  rating  of at least  "AA-"  from  S&P,  Fitch,  or Duff &  Phelps  or a
financial strength rating of at least "Aa3" from Moody's. Fannie Mae and Freddie
Mac require  mortgage  guaranty  insurers  to  maintain  two ratings of "AA-" or
better.  Triad has a claims-paying  ability rating of "AA" from S&P, Fitch,  and
Duff & Phelps. These ratings meet the eligibility requirements of Fannie Mae and
Freddie Mac. S&P, Fitch, and Duff & Phelps include TGAC operations and financial
position with those of Triad in rating Triad's claims-paying  ability. There can
be no assurance that Triad's  claims-paying  ability rating, the method by which
this rating is determined,  or the  eligibility  requirements  of Fannie Mae and
Freddie Mac will not change.

     The Real Estate  Settlement and Procedures Act of 1974 ("RESPA") applies to
most residential  mortgages  insured by Triad, and related  regulations  provide
that mortgage insurance is a "settlement  service" for purposes of loans subject
to RESPA. Subject to limited exceptions,  RESPA prohibits persons from accepting
anything of value for referring real estate settlement  services to any provider
of such services.  Although many states prohibit  mortgage  insurers from giving
rebates,  RESPA has been interpreted to cover many non-fee services as well. The
recently  renewed  interest of the  Department of Housing and Urban  Development


                                       31

<PAGE>


("HUD") in  investigating  transactions  for compliance with RESPA has increased
awareness  of  both  mortgage  insurers  and  their  customers  of the  possible
implications of this law.

     Various lawsuits filed in US district court in Augusta, Georgia assert that
defendant  mortgage  insurers  have violated  RESPA  guidelines by offering pool
insurance,   captive  reinsurance,   and  contract   underwriting   services  at
preferential below market prices as an illegal inducement to persuade lenders to
use those mortgage  insurers for primary insurance  coverage.  The lawsuits seek
class action status.  In  particular,  the suits contend that pool insurance has
been  underpriced in regard to the amount of risk  involved.  Triad has not been
named in the lawsuits  and does not offer pool  insurance.  Management  does not
know if Triad  will be named in the  lawsuits,  what the  outcome  of the  legal
proceedings  will be, or the future  impact of these  lawsuits  on the  mortgage
insurance industry.

     Most  originators of mortgage loans are required to collect and report data
relating to a mortgage  loan  applicant's  race,  nationality,  gender,  marital
status,  and census tract to HUD or the Federal  Reserve under the Home Mortgage
Disclosure  Act of 1975  ("HMDA").  The  purpose  of HMDA is to detect  possible
discrimination  in home lending and,  through  disclosure,  to  discourage  such
discrimination.  Mortgage  insurers  are  not  required  pursuant  to any law or
regulation  to  report  HMDA data  although  under  the laws of  several  states
mortgage insurers are currently  prohibited from  discriminating on the basis of
certain  classifications.  The active  mortgage  insurers,  through  their trade
association,  the Mortgage Insurance Companies of America ("MICA"), have entered
into an agreement with the Federal Financial  Institutions  Examinations Council
("FFIEC")  to  report  the same  data on loans  submitted  for  insurance  as is
required for most mortgage lenders under HMDA.

INDIRECT REGULATION

     The  Company,  Triad,  and  its  subsidiaries  are  also  indirectly,   but
significantly,  impacted by regulations  affecting purchasers of mortgage loans,
such as Freddie  Mac and Fannie  Mae,  and  regulations  affecting  governmental
insurers  such  as the  FHA as  well  as  lenders.  Private  mortgage  insurers,
including Triad, are highly dependent upon federal housing legislation and other
laws and regulations which affect the demand for private mortgage  insurance and
the housing market generally.  For example,  housing legislation enacted in 1992
permits up to 100% of borrower  closing costs to be financed by loans insured by
FHA, a significant  increase  from the previous 57% limit.  Also, in April 1994,
HUD reduced the initial premium (payable at loan  origination) for FHA insurance
from 3.0% to 2.25%.  Effective January 2000, the maximum  individual loan amount
that the FHA could  insure  increased  from  $208,800 to  $219,849.  The maximum
individual loan amount the VA can insure presently is $203,000. The maximum loan
amounts  that  the FHA and VA can  insure  are  subject  to  adjustment  and may
increase in the future.  Any future  legislation  that  increases  the number of
persons  eligible  for FHA or VA mortgages  could have an adverse  effect on the
Company's ability to compete with the FHA or VA.

                                       32
<PAGE>


     Pursuant to the Financial  Institutions Reform,  Recovery,  and Enforcement
Act of  1989  ("FIRREA"),  the  Office  of  Thrift  Supervision  ("OTS")  issued
risk-based capital rules for savings institutions. These rules establish a lower
capital  requirement  for a low down  payment  loan that is insured with private
mortgage  insurance,  as  opposed  to  remaining  uninsured.   Furthermore,  the
guidelines for real estate lending policies  applicable to savings  institutions
and commercial banks provide that such institutions  should require  appropriate
credit  enhancement  in  the  form  of  either  mortgage  insurance  or  readily
marketable  collateral  for  any  high  LTV  mortgage.  To the  extent  FIRREA's
risk-based  capital rules or the  guidelines  for real estate  lending  policies
applicable  to savings  institutions  and  commercial  banks are  changed in the
future,  some of the  benefits  of FIRREA  and the  guidelines  for real  estate
lending  policies to the mortgage  insurance  industry,  including Triad, may be
curtailed or eliminated.

     The Office of Federal Housing Enterprise Oversight ("OFHEO") has proposed a
risk- based capital regulation for Fannie Mae and Freddie Mac. The proposal sets
up "hair cuts" for different  types of credit  enhancement  utilized by the GSEs
based on the rating given the entity providing the enhancement and the nature of
the credit  enhancement  provided.  For example,  derivative  and  nonderivative
counterparties  are treated  differently as are entities with  different  credit
ratings. The proposed regulation is currently open for comment.  Management does
not know what the outcome of the  proposal  will be or the future  impact of the
proposal,  if adopted,  on the mortgage insurance  industry.  If the proposal is
adopted  and  AA-rated  entities  are  treated  less  favorably  than  AAA-rated
entities,  the regulation  may adversely  affect  mortgage  insurers that cannot
obtain a AAA rating.

     Fannie Mae and Freddie Mac each provide  their own  automated  underwriting
system to be used by  mortgage  originators  selling  mortgages  to them.  These
systems,  which are  provided  by Triad as a service to the  Company's  contract
underwriting  customers,  streamline the mortgage process and reduce costs. As a
result of the  increased  acceptance  of these  products,  the  process by which
mortgage  originators  sell  loans to Fannie  Mae and  Freddie  Mac is  becoming
increasingly  automated,  a trend which is expected  to  continue.  As a result,
Fannie Mae and Freddie Mac could  develop the  capability to become the decision
maker regarding  selection of a private mortgage insurer for loans sold to them,
a decision traditionally made by the mortgage originator.  The Company, however,
is not aware of any plans to do so. The  concentration  of purchasing power that
would be attained if such  development in fact occurred could adversely  affect,
from the Company's perspective, the terms on which mortgage insurance is written
on loans sold to Fannie Mae and Freddie Mac.

     Additionally, proposals have been advanced which would allow Fannie Mae and
Freddie  Mac  additional  flexibility  in  determining  the amount and nature of
alternative recourse  arrangements or other credit enhancements which they could
utilize as  substitutes  for private  mortgage  insurance.  The  Company  cannot
predict  if or  when  any of the  foregoing  legislation  or  proposals  will be
adopted,  but if adopted and  depending  upon the nature and extent of revisions
made, demand for private mortgage insurance may be adversely affected. There can
be no assurance that other federal laws affecting such institutions and entities
will not change, or that new legislation or regulation will not be adopted.

                                       33
<PAGE>


     Upon request by an insured,  Triad must cancel the mortgage insurance for a
mortgage  loan.  Fannie  Mae and  Freddie  Mac  guidelines,  as well as  several
existing and proposed state  statutes,  contain  various  provisions  which give
borrowers the right to request  cancellation of borrower paid mortgage insurance
when  specified  conditions  are met.  The  Homeowners  Protection  Act of 1998,
effective  July 29,  1999,  requires  mortgage  lenders to  periodically  update
borrowers about their private mortgage insurance. Under the legislation, lenders
must inform borrowers that: 1) they have private mortgage insurance; and 2) they
may request  cancellation  of borrower paid mortgage  insurance  when their home
equity  (loan-to-value  or LTV ratio) has reached 80% and other  conditions  are
met. The legislation  further requires lenders to automatically  cancel borrower
paid  private  mortgage  insurance  when  home  equity  reaches  78% if  certain
conditions are met. Because most mortgage  borrowers who obtain private mortgage
insurance  do not achieve 20% equity in their homes before the homes are sold or
the  mortgages  refinanced,  the Company  does not expect to lose a  significant
amount of its insurance in force due to the enactment of this legislation.

     In 1996,  the Office of the  Comptroller  of the Currency  ("OCC")  granted
permission  to national  banks to have a reinsurance  company as a  wholly-owned
operating subsidiary for the purpose of reinsuring mortgage insurance written on
loans originated or purchased by such banks. Several subsequent  applications by
banks to offer  reinsurance have been approved by the OCC including at least one
request to engage in quota share  reinsurance.  The OTS, which regulates thrifts
and savings  institutions,  has announced that it would approve applications for
such captive  arrangements  as well. The  reinsurance  subsidiaries  of national
banks or  savings  institutions  could  become  significant  competitors  of the
Company in the future.

     In November 1999, the  Gramm-Leach-Bliley  Act, also known as the Financial
Services  Modernization  Act  of  1999,  became  effective  and  allows  holding
companies of banks also to own a company that underwrites insurance. As a result
of this Act,  banking  organizations  that  previously  were not  allowed  to be
affiliated with insurance  companies may now do so.  Management does not know to
what extent this expanded  opportunity for banks will be utilized or how it will
affect the mortgage insurance  industry.  However,  the evolution of federal law
making it easier for banks to engage in the mortgage  guaranty  business through
affiliates may subject mortgage  guaranty  insurers to more intense  competition
and risk-sharing with bank lender customers.

EMPLOYEES

     As of December 31, 1999,  the Company  employed 170 persons.  Employees are
not covered by any collective  bargaining  agreement.  The Company considers its
employee relations to be satisfactory.

                                       34

<PAGE>


EXECUTIVE OFFICERS

The executive officers of the Company are as follows:

Name                           Position                                    Age
----                           --------                                    ---

William T. Ratliff, III        Chairman of the Board of                    46
                               the Company and Triad

Darryl W. Thompson             President, Chief Executive                  59
                               Officer, and Director of the
                               Company and Triad

Ron D. Kessinger               Executive Vice President and                45
                               Chief Financial Officer of the
                               Company and Executive Vice
                               President of Triad

John H. Williams               Executive Vice President and                52
                               Director of Triad

Henry B. Freeman               Senior Vice President of Triad              50

Earl F. Wall                   Senior Vice President, Secretary,           42
                               and General Counsel of the
                               Company and Triad

Michael R. Oswalt              Senior Vice President, Controller,          38
                               Treasurer, and Principal Accounting
                               Officer of the Company and Triad



                                       35
<PAGE>


     WILLIAM T.  RATLIFF,  III has been the Chairman of the Board of the Company
since 1993. Mr. Ratliff has also been Chairman of the Board of Triad since 1989,
President of CIC since 1990 and was  President  and General  Partner of CML from
1987 to 1995.  Mr.  Ratliff has been Chairman of New South Federal  Savings Bank
("New South")  since 1986 and  President  and Director of New South  Bancshares,
Inc., New South's parent company,  since 1995.  From March 1994,  until December
1996, Mr. Ratliff  served as President of Southwide  Life  Insurance  Corp.,  of
which he had been Executive Vice President since 1993. Mr. Ratliff joined CML in
1981 after completing his doctoral degree with a study of planning  processes in
an  insurance  company.  Previously,  he  trained  and  worked  as an  educator,
counselor, and organizational consultant.

     DARRYL W. THOMPSON has been the President,  Chief  Executive  Officer and a
Director of the Company since 1993. Mr. Thompson has also been President,  Chief
Executive  Officer,  and a Director of Triad since its  inception in 1987.  From
1986 to 1989, Mr. Thompson also served as President and Chief Executive  Officer
of Triad Life Insurance Company,  which sold mortgage insurance  products.  From
1976 to 1985, Mr.  Thompson served as Senior Vice  President/Southeast  Division
Manager of MGIC. Mr. Thompson joined MGIC in 1972.

     RON D. KESSINGER  has been  Executive  Vice  President and Chief  Financial
Officer of the Company since  December  1999.  Mr.  Kessinger has been Executive
Vice President of Insurance  Operations of Triad since June 1996. Mr.  Kessinger
was Vice  President of Claims and  Administration  of Triad from January 1991 to
June 1996.  From 1985 to 1991,  Mr.  Kessinger was employed by Integon  Mortgage
Guaranty  Insurance  Corporation,  most  recently  serving as Vice  President of
Operations.  Prior to joining Integon Mortgage Guaranty  Insurance  Corporation,
Mr.  Kessinger was employed by the parent company of Integon  Mortgage  Guaranty
Insurance Corporation.

     JOHN H. WILLIAMS has been  Executive Vice President and a Director of Triad
since its  inception in 1987.  From 1986 to 1987,  Mr.  Williams was employed by
Triad Life Insurance  Company to develop and organize Triad.  From 1978 to 1985,
Mr.  Williams was employed by MGIC,  most recently  serving as Vice President of
Secondary Market Trading.

     HENRY B. FREEMAN has been Senior Vice President of Risk Management of Triad
since January 1999, and was a Vice  President from 1987 till 1999.  From 1981 to
1987, Mr. Freeman was employed by Home Guaranty Insurance Corporation,  where he
performed underwriting and claims management services.


                                       36
<PAGE>


     EARL F. WALL has been Senior Vice  President of Triad since  December 1999,
General  Counsel of Triad since January 1996, and Secretary since June 1996. Mr.
Wall was Vice  President of Triad from 1996 till 1999.  Mr. Wall has been Senior
Vice  President of the Company since  December  1999,  and Secretary and General
Counsel of the Company since  September 1996. Mr. Wall was Vice President of the
Company from 1996 to 1999.  From 1982 to 1995,  Mr. Wall was employed by Integon
in a number of capacities  including Vice President,  Associate General Counsel,
and Director of Integon Life  Insurance  Corporation  and Georgia  International
Life  Insurance  Corporation,  Vice  President,  and General  Counsel of Integon
Mortgage Guaranty Insurance  Corporation,  and Vice President,  General Counsel,
and Director of Marketing One, Inc.

     MICHAEL R. OSWALT has been  Senior  Vice  President  and  Treasurer  of the
Company since December 1999, and Controller of the Company since March 1994. Mr.
Oswalt has been a Senior Vice  President and  Treasurer of Triad since  December
1999,  and Controller of Triad since June 1996. Mr. Oswalt was Vice President of
the Company and Triad from December 1994 to December 1999. Mr. Oswalt previously
served as Vice  President and  Controller of CIC and  Southwide  Life  Insurance
Corp. from February 1994,  until June 1996. From January 1993, to February 1994,
Mr. Oswalt was employed by Complete  Health  Services,  Inc.  where he performed
internal  audit  services.  From 1991 to 1993, Mr. Oswalt was employed by Arthur
Andersen & Co. Prior to joining  Arthur  Andersen & Co., Mr. Oswalt was employed
by  Deloitte  & Touche  from  1988 to 1991.  Mr.  Oswalt is a  certified  public
accountant.

Officers of the Company serve at the discretion of the Board of Directors of the
Company.


ITEM 2.   PROPERTIES.

     As  of  December  31,  1999,   the  Company  leases  office  space  in  its
Winston-Salem  headquarters and its ten underwriting  offices located throughout
the country  comprising  approximately  41,593 square feet under leases expiring
between 2000 and 2002 and which  require  annual  lease  payments of $643,542 in
2000.  With respect to all  facilities,  the Company has, or believes it will be
able to obtain,  lease renewals on satisfactory  terms. The Company believes its
existing  properties  are well  utilized  and are  suitable and adequate for its
present circumstances.

     The  Company  maintains  mid-range  and  micro-computer  systems  from  its
corporate data center located in its  headquarters  building to support its data
processing requirements for accounting,  claims, marketing, risk management, and
underwriting.  The  Company  has in place  back-up  procedures  in the  event of
emergency situations.


                                       37
<PAGE>


ITEM 3.   LEGAL PROCEEDINGS.

     The Company and its  subsidiaries,  in common with other  private  mortgage
insurers,  are subject to litigation  in the normal course of their  businesses.
There is no material  litigation  currently  pending  against the Company or its
subsidiaries.


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

      None.


                                     PART II


ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY
          AND RELATED STOCKHOLDER MATTERS.

     The Company's  Common Stock trades on The Nasdaq Stock  Market(R) under the
symbol  "TGIC."  At  December  31,  1999,  13,303,194  shares  were  issued  and
outstanding.  The  following  table sets forth the  highest  and lowest  closing
prices of the  Company's  Common Stock,  $0.01 par value,  as reported by Nasdaq
during the periods indicated.



                                  1999                      1998
                                  ----                      ----
                           High        Low             High       Low
First Quarter............ 22 3/4     13 9/16          42 1/8     30
Second Quarter........... 18 1/16    12               40 3/4     29 3/4
Third Quarter............ 20 1/8     16 5/8           35 7/8     22 3/4
Fourth Quarter .......... 23 1/2     16 7/16          25 3/8     13 1/2


     As of March 15,  2000,  the  number of  stockholders  of record of  Company
Common Stock was approximately  400. In addition,  there were an estimated 3,000
beneficial owners of shares held by brokers and fiduciaries.

     Payments of future  dividends are subject to  declaration  by the Company's
Board of  Directors.  The dividend  policy is  dependent  also on the ability of
Triad  to  pay  dividends  to  the  Company.   Because  of  regulatory  dividend
restrictions  by the  Illinois  Department  of  Insurance  and  Triad's  need to
maintain capital levels required by rating agencies,  the Company has no present
intention to pay dividends.

                                       38
<PAGE>
ITEM 6.   SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
                                                                           Year Ended December 31
                                                  ------------------------------------------------------------------------
                                                        1999          1998          1997           1996           1995
                                                        ----          ----          ----           ----           ----
                                                                (Dollars in thousands, except per share amounts)
<S>                                                 <C>           <C>           <C>           <C>            <C>
Income  Statement  Data (for period  ended):
Premiums written:
     Direct.......................................  $     65,381  $     52,974  $     40,083  $      26,152  $      18,890
     Assumed......................................            11            13            20             26             34
     Ceded........................................        (1,665)       (1,090)       (1,772)        (2,217)        (3,924)
                                                     -----------   -----------   -----------   ------------   ------------
                                                    $     63,727  $     51,897  $     38,331  $      23,961  $      15,000
                                                     ===========   ===========   ===========   ============   ============
Earned premiums...................................  $     63,970  $     52,822  $     38,522  $      24,727  $      15,478
Net investment income.............................        10,546         9,289         6,234          5,447          4,836
Realized investments gains (losses)...............         1,153           880            34           (162)           173
Other income......................................            13            14             8             --              1
                                                     -----------   -----------   -----------   ------------   ------------
     Total revenues...............................        75,682        63,005        44,798         30,012         20,488

Net losses and loss adjustment expenses...........         7,111         7,009         5,177          3,279          2,217
Interest expense on debt..........................         2,780         2,554            --             --             --
Amortization of deferred policy acquisition cost..         6,955         5,955         4,120          3,235          2,289
Other operating expenses (net of acquisition
        cost deferred)............................        15,061        12,435        10,257          7,259          4,753
                                                     -----------   -----------   -----------   ------------   ------------
Income before income taxes........................        43,775        35,052        25,244         16,239         11,229
Income taxes......................................        13,365        10,678         8,002          5,042          3,470
                                                     -----------   -----------   -----------   ------------   ------------
Net income........................................  $     30,410  $     24,374  $     17,242  $      11,197  $       7,759
                                                     ===========   ===========   ===========   ============   ============
     Basic earnings per share (1).................  $       2.28  $       1.83  $       1.30  $        0.84  $        0.59
     Diluted earnings per share (1)...............  $       2.23  $       1.76  $       1.26  $        0.83  $        0.58
                                                     -----------   -----------   -----------   ------------   ------------
Weighted average common and common share
     equivalents outstanding (1)
         Basic ...................................    13,312,104    13,342,749    13,291,160     13,277,853     13,196,067
         Diluted..................................    13,640,716    13,843,382    13,713,538     13,541,551     13,333,014

Balance Sheet Data (at year end):
     Total assets (2).............................  $    263,141  $    230,512  $    155,272  $     122,397  $     105,664
     Total invested assets........................  $    191,564  $    177,301  $    119,877  $      98,027  $      85,978
     Losses and loss adjustment expenses..........  $     14,751  $     12,143  $      8,960  $       6,305  $       4,589
     Unearned premiums............................  $      6,831  $      7,055  $      7,988  $       8,216  $       9,086
     Long-term debt ..............................  $     34,462  $     34,457  $         --  $          --  $          --
     Stockholders' equity.........................  $    157,072  $    137,531  $    111,781  $      91,680  $      80,441
Statutory Ratios (3):
     Loss ratio...................................         11.1%         13.3%         14.2%          16.0%          14.3%
     Expense ratio................................         40.5%         42.3%         42.5%          49.6%          59.1%
                                                     -----------   -----------   -----------   ------------   ------------
     Combined ratio...............................         51.6%         55.6%         56.7%          65.6%          73.4%
                                                     ===========   ===========   ===========   ============   ============
GAAP Ratios:
     Loss ratio...................................         11.1%         13.3%         13.4%          13.3%          14.3%
     Expense ratio................................         34.5%         35.4%         37.5%          43.8%          46.9%
                                                     -----------   -----------   -----------   ------------   ------------
     Combined ratio...............................         45.6%         48.7%         50.9%          57.1%          61.2%
                                                     ===========   ===========   ===========   ============   ============
Other Statutory Data (dollars in millions) (3):
     Direct insurance in force....................  $   13,038.0  $   11,256.6  $    9,176.7  $     6,556.3  $     5,080.3
     Direct risk in force (gross).................  $    3,222.5  $    2,777.4  $    2,231.4  $     1,515.4  $     1,090.6
     Risk-to-capital..............................        15.4:1        16.2:1        19.3:1         15.8:1         11.1:1
<FN>
(1)  Periods have been restated to reflect the three-for-two stock split on June 28, 1996, and the two-for-one stock split on
     October 28, 1997.
(2)  Prior periodshave been restated to reflect reclassification of Tax and Loss bonds.
(3)  Based on  statutory  accounting  practices  and derived  from  consolidated statutory financial statements of Triad.
</FN>
</TABLE>
                                       39
<PAGE>

ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                  FINANCIAL CONDITION AND RESULTS OF OPERATION.


RESULTS OF OPERATIONS

1999 COMPARED TO 1998

     Net income for 1999  increased  24.8% to $30.4  million  compared  to $24.4
million in 1998. This improvement is attributable  primarily to a 21.1% increase
in earned premiums,  a 13.5% increase in net investment  income, and an improved
combined loss and expense ratio for all of 1999.

     Net income per share on a diluted basis  increased  26.6% to $2.23 for 1999
compared to $1.76 per share for 1998.  Operating  earnings  per share were $2.17
for 1999  compared to $1.72 for 1998.  Operating  earnings  exclude net realized
gains of  approximately  $1.2 million in 1999 and of  approximately  $881,000 in
1998.

     Net new  insurance  written  was $4.4  billion for 1999 as compared to $4.8
billion for 1998, a decrease of 7.8%. For the fourth quarter,  net new insurance
written  decreased  41.5% in 1999 to $892 million as compared to $1.5 billion in
1998.  The Company  also  produced  approximately  $11 million of new  insurance
written on seasoned loans in 1999 compared to $225 million in 1998. The decrease
in new insurance written was the result of changing  business  relationships and
declines in the mortgage insurance market,  especially during the fourth quarter
of 1999.  Driven  by a higher  interest  rate  environment,  the  total  net new
mortgage  insurance  written market  decreased 27% in the fourth quarter of 1999
compared to the fourth quarter of 1998,  according to industry data.  Based upon
this information, Triad's national market share of net new insurance written was
2.3% for all of 1999 compared to 2.6% for 1998.  Total direct insurance in force
reached  $13.0  billion at  December  31,  1999,  compared  to $11.3  billion at
December 31, 1998, an increase of 15.8%.

     Total direct  premiums  written were $65.4 million for 1999, an increase of
23.4%  compared to $53.0  million for 1998.  Net premiums  written  increased by
22.8% to $63.7  million  in 1999  compared  to $51.9  million  for 1998.  Earned
premiums  increased 21.1% to $64.0 million for 1999 from $52.8 million for 1998.
This  growth in written  and earned  premium  resulted  from both new  insurance
production  in  1999  and  an   improvement   in  the   Company's   persistency.
Approximately  22.9% of new  insurance  written  in 1999 was  subject to captive
mortgage reinsurance and similar arrangements  compared to 6.6% of new insurance
written in 1998. Ceded premiums for 1999, which includes third party reinsurance
arrangements as well as captive reinsurance agreements, increased 53% over 1998.
Management  anticipates  ceded premiums will continue to increase as a result of
the expected increase in risk-sharing programs.

                                       40

<PAGE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATION -- CONTINUED


     Refinance  activity  was 25.0% (11.5% in fourth  quarter) of new  insurance
written in 1999 compared to 31.7% (34.3% in fourth quarter) of insurance written
in 1998, reflecting the rise in interest rates during the year. Persistency,  or
the amount of insurance  in force  remaining  from one year prior,  was 77.1% at
December 31, 1999,  compared to 70.0% at December 31, 1998.  Persistency for the
fourth  quarter of 1999 improved to an annualized  rate of 83.6%  reflecting the
trend of rising  interest  rates and  declining  cancellations.  Sales under the
Company's  monthly premium plan  represented  96.4% of new insurance  written in
1999 compared to 97.3% in the same period of 1998.

     Net  investment  income for 1999 was $10.5  million,  a 13.5% increase over
$9.3 million in 1998. This increase in investment income is the result of growth
in the average book value of invested  assets by $32.3 million to $184.0 million
at December 31, 1999,  from $151.7  million at December 31, 1998.  The growth in
invested  assets is  attributable  to normal  operating  cash flow. The yield on
average  invested  assets declined to 5.7% for 1999, as compared to 6.1% for all
of 1998, reflecting the Company's continued investment strategy to emphasize tax
preferred  securities which yield lower pre-tax rates than similar fully taxable
securities.  The portfolio's  tax-equivalent yield was 7.7% for 1999 versus 7.9%
for 1998.  Approximately  71% or $124.4 million of the Company's  fixed maturity
portfolio  at  December  31,   1999,   was  composed  of  state  and   municipal
tax-preferred  securities  as compared to 70% or $107.5  million at December 31,
1998.

     The Company's loss ratio (the ratio of incurred losses to earned  premiums)
was 11.1% for 1999  compared to 13.3% for 1998.  The loss ratio was 7.8% for the
fourth  quarter of 1999  compared to 18.6% for the fourth  quarter of 1998.  The
Company's favorable loss ratio reflects the low level of delinquencies  compared
to the number of insured  loans and the fact that  approximately  79% (78% as of
December 31, 1998) of the  Company's  insurance in force was  originated  in the
last 36 months.  Management  believes,  based upon its  experience  and industry
data,  that  claims  incidence  for it and other  private  mortgage  insurers is
generally  highest in the third  through  sixth  years  after loan  origination.
Although the claims  experience on new insurance  written in previous  years has
been quite  favorable,  the Company expects its incurred losses to increase as a
greater amount of its insurance in force reaches its  anticipated  highest claim
frequency  years.  Due to the inherent  uncertainty  of future  premium  levels,
losses,  economic  conditions,  and other  factors that impact  earnings,  it is
impossible  to predict  with any degree of  certainty  the impact of such higher
claim frequencies on future earnings.

     During periods of  significant  refinancing  activity,  it is possible that
policies on  stronger  loans may be canceled  and  policies on weaker  loans may
remain in force,  thus potentially  increasing the loss ratio on older business.
Substantial  increases in  production  of new business  during these periods can
offset the increased loss ratio on the older business.



                                       41

<PAGE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATION -- CONTINUED

     Net losses and loss  adjustment  expenses (net of  reinsurance  recoveries)
increased by 1.5% in 1999 to $7.1 million compared to $7.0 million in 1998. This
increase reflects the growing amount of the Company's insurance in force and the
resulting  recognition  of a greater  amount of insurance in force  reaching its
higher claim frequency years.

     Amortization  of deferred  policy  acquisition  costs increased by 16.8% to
$7.0  million  in 1999  compared  to $6.0  million  for 1998.  The  increase  in
amortization  reflects  both a growing  balance of deferred  policy  acquisition
costs to amortize as the Company  builds its total  insurance  in force and high
cancellations due to refinance activity during 1999.

     Other operating expenses increased 21.1% to $15.1 million for 1999 compared
to $12.4  million  for the same  period in 1998.  This  increase  in expenses is
primarily attributable to advertising,  personnel,  and facilities and equipment
costs  required  to  support  the  Company's  product  development,   technology
enhancements, geographic expansion, and increased production.

     The expense ratio (ratio of underwriting  expenses to net premiums written)
for 1999 was 34.5% compared to 35.4% for 1998.  Contributing to this improvement
is the higher level of written premiums in 1999 partially offset by the increase
in expenses.

     The effective tax rate for 1999 and 1998 was 30.5%.  Management expects the
Company's effective tax rate to remain about the same as long as yields from new
funds invested in tax-preferred securities remain favorable in relation to fully
taxable securities.

1998 COMPARED TO 1997

     Net income for 1998  increased  41.4% to $24.4  million  compared  to $17.2
million in 1997. This improvement was attributable to a 37.1% increase in earned
premiums,  a 49.0% increase in net investment  income,  and an improved combined
loss and expense ratio.

     Net income per share on a diluted basis  increased  40.0% to $1.76 for 1998
compared to $1.26 per share for 1997.  Operating  earnings  per share were $1.72
for 1998  compared to $1.26 for 1997.  Operating  earnings  exclude net realized
gains of approximately $881,000 and $34,000 in 1998 and 1997, respectively.

     Net new  insurance  written  was $4.8  billion for 1998 as compared to $2.9
billion for 1997, an increase of 66.2%.  For the fourth  quarter  1998,  net new
insurance  written  increased 106.2% to $1.5 billion compared to $740 million in
the fourth quarter 1997. The Company also produced approximately $225 million of
new  insurance  written on seasoned  loans in 1998  compared to $950  million in
1997. The increase in new insurance  written was the result of a strong economy,
continued  geographic  expansion,  the  penetration  of Triad's  products in the
marketplace  to both new and existing  customers,  and the  introduction  of new
products.  According to industry data,  Triad's national market share of net new


                                       42

<PAGE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATION -- CONTINUED


insurance  written  increased to 2.6% for all of 1998 and to 2.8% for the fourth
quarter as compared to 2.4% reported for all of 1997.

     The growth in new insurance  written also reflected the favorable  interest
rate  environment  in 1998 which caused home buying and refinance  activities to
remain  strong.  Refinance  activity was 31.7% of new insurance  written in 1998
compared to 14.0% in 1997. Total direct insurance in force reached $11.3 billion
at December 31, 1998, compared to $9.2 billion at December 31, 1997, an increase
of 22.7%.

     Total direct  premiums  written were $53.0 million for 1998, an increase of
32.2%  compared to $40.1  million for 1997.  Net premiums  written  increased by
35.4% to $51.9  million  in 1998  compared  to $38.3  million  for 1997.  Earned
premiums  increased 37.1% to $52.8 million for 1998 from $38.5 million for 1997.
This  growth in written and earned  premium  resulted  from the  increase in new
insurance  written  offset by a decline in the Company's  persistency  rate. The
Company's  persistency,  or the percentage of insurance  remaining in force from
one year prior,  was 70.0% at December 31,  1998,  compared to 83.5% at December
31, 1997. Sales under the Company's  monthly premium plan  represented  97.3% of
new insurance written in 1998 compared to 94.3% in 1997.

     Net investment income for 1998 was $9.3 million, a 49.0% increase over $6.2
million in 1997.  This increase in investment  income is the result of growth in
the average book value of invested  assets by $47.9 million to $151.7 million at
December 31,  1998,  from $103.8  million at December  31,  1997.  The growth in
invested  assets  is  attributable  to the  investment  of the  proceeds  of the
Company's  $35.0 million debt offering,  completed in late January 1998, as well
as the increase in invested assets due to normal  operating cash flow. The yield
on average  invested  assets was 6.1% for 1998  compared  to 6.0% for 1997.  The
portfolio's  tax-equivalent  yield  was  7.9%  for 1998  versus  8.0% for  1997.
Approximately  70%, or $107.5 million of the Company's fixed maturity  portfolio
at  December  31,  1998,  was  composed  of state  and  municipal  tax-preferred
securities as compared to 72%, or $68.7 million, at December 31, 1997.

     The Company's loss ratio (the ratio of incurred losses to earned  premiums)
was 13.3% for 1998 compared to 13.4% for 1997.  The loss ratio was 18.6% for the
fourth  quarter of 1998  compared to 12.1% for the fourth  quarter of 1997.  The
Company's favorable loss ratio reflected the low level of delinquencies compared
to the  number  of  insured  loans and the fact  that  approximately  78% of the
Company's insurance in force was originated in the past 36 months.

     Net losses and loss  adjustment  expenses (net of  reinsurance  recoveries)
increased  by 35.4% in 1998 to $7.0  million  compared to $5.2  million in 1997.
This increase  reflected the growing amount of the Company's  insurance in force


                                       43

<PAGE>


IITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATION -- CONTINUED


and the resulting recognition of a greater amount of insurance in force reaching
its higher claim frequency years.

     Amortization  of deferred  policy  acquisition  costs increased by 44.5% to
$6.0  million  in 1998  compared  to $4.1  million  for 1997.  The  increase  in
amortization  reflected an increasing deferred policy acquisition costs asset to
amortize  as the  Company  builds  its  total  insurance  in force  and a higher
cancellation rate during 1998.

     In January 1998, the Company  completed a $35.0 million private offering of
notes due January  15,  2028,  which bear  interest at a rate of 7.9% per annum.
Interest expense relating to this debt was $2.6 million for 1998.

     Standard  &  Poor's  Corporation,  in  February  1999,  affirmed  the  "AA"
Financial Strength and counterparty credit rating of Triad. In addition, the "A"
issuer credit rating and senior debt rating of the Company were also affirmed.

     Other operating expenses increased 21.2% to $12.4 million for 1998 compared
to $10.3 million for 1997. This increase in expenses was primarily  attributable
to  advertising,  personnel,  and  facilities  and equipment  costs  required to
support the Company's product development,  technology enhancements,  geographic
expansion, and increased production.

     The expense ratio (ratio of underwriting  expenses to net premiums written)
for 1998 was 35.4% compared to 37.5% for 1997. Contributing to this year-to-date
improvement was the higher level of written premiums in 1998 partially offset by
the increase in expenses.

     The effective tax rate for 1998 was 30.5% compared to 31.7% for 1997.  This
decrease was primarily the result of the increase in investment in tax preferred
securities.

LIQUIDITY AND CAPITAL RESOURCES

     The  Company's  sources of operating  funds  consist  primarily of premiums
written and investment  income.  Operating cash flow is applied primarily to the
payment of claims, interest, expenses, and taxes.

     The Company generated positive cash flow from operating activities for 1999
of $30.8  million  compared to $23.3  million for 1998.  The increase in Triad's
operating  cash flow  reflects  the growth in  renewal  premiums  and  insurance
written that has more than offset the  increases in claims paid,  interest,  and
other expenses.

     The  Company's  business  does not routinely  require  significant  capital
expenditures   other  than  for   enhancements  to  its  computer   systems  and
technological  capabilities.  Positive  cash flows are invested  pending  future


                                       44

<PAGE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATION -- CONTINUED


payments of claims and expenses.  Cash flow shortfalls,  if any, could be funded
through  sales  of  short-term   investments  and  other  investment   portfolio
securities.

         The parent  company's  cash flow is  dependent  on interest  income and
payments from Triad  including  cash  dividends,  management  fees, and interest
payments under surplus notes. The insurance laws of the State of Illinois impose
certain  restrictions  on dividends  from Triad.  These  restrictions,  based on
statutory accounting practices,  include requirements that dividends may be paid
only out of statutory  earned surplus as of the end of the preceding fiscal year
and limit the amount of dividends that may be paid without prior approval of the
Illinois  Insurance  Department.   The  Illinois  Insurance  Department  permits
expenses  of the  parent  company  to be  reimbursed  by  Triad  in the  form of
management fees.

     Consolidated  invested  assets were $191.6  million at December  31,  1999,
compared to $177.3 million at December 31, 1998.  Fixed maturity  securities and
equity securities classified as available-for-sale totaled $177.7 million at the
end of 1999.  Net  unrealized  investment  gains  were  $2.1  million  on equity
securities,  and net  unrealized  investment  losses were $9.4  million on fixed
maturity securities at December 31, 1999. The fixed maturity portfolio consisted
of approximately 71% municipal  securities,  24% corporate  securities,  4% U.S.
government obligations, and 1% mortgage-backed bonds at December 31, 1999.

     Fixed  maturity  securities  represent  approximately  86% of the Company's
invested  assets at December  31,  1999,  and the fair value of these fixed rate
securities  generally  bears an inverse  relationship  to changes in  prevailing
market  interest rates.  The Company's  long-term debt bears interest at a fixed
rate of 7.9%  per  annum,  and as a  result,  the  fair  value  of this  debt is
sensitive to changes in prevailing  interest  rates. A 10% relative  increase or
decrease  in  market   interest  rates  that  affect  the  Company's   financial
instruments  would not have a material impact on earnings during the next fiscal
year, and would not materially affect the fair value of the Company's  financial
instruments.

     The  Company's  loss  reserves  increased to $14.8  million at December 31,
1999,  compared to $12.1 million at December 31, 1998. This growth is the result
of the increases in new insurance written and the maturing of the Company's risk
in force.  Consistent  with industry  practices,  the Company does not establish
loss  reserves  for future  claims on insured  loans which are not  currently in
default. The Company's reserves per delinquent loan were $21,400 at December 31,
1999, compared to $23,400 at December 31, 1998. The Company's delinquency ratio,
the ratio of  delinquent  insured  loans to total  insured  loans,  was 0.64% at
December 31, 1999, compared to 0.53% at December 31, 1998.



                                       45

<PAGE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATION -- CONTINUED

     Total  stockholders'  equity  increased  to $157.1  million at December 31,
1999, from $137.5 million at December 31, 1998. This increase resulted primarily
from net income of $30.4 million for 1999 offset by the change in net unrealized
gains and losses on invested  assets  classified as  available-for-sale  of $8.6
million  (net of  income  tax)  and the  retirement  of  146,000  shares  of the
Company's stock purchased for $2.6 million.

     Triad's total statutory  policyholders'  surplus increased to $94.6 million
at December 31, 1999,  from $89.5  million at December 31, 1998.  This  increase
resulted  primarily  from  statutory  net income of $40.0  million  offset by an
increase  in  the  statutory  contingency  reserve  of  $32.2  million.  Triad's
statutory  earned  surplus was $10.9  million at December 31, 1999,  compared to
$5.8 million at December 31, 1998,  reflecting,  primarily,  growth in statutory
net income  greater  than the  increase in the  statutory  contingency  reserve.
Approximately $1.0 and $1.9 million of the statutory earned surplus for December
31, 1999, and December 31, 1998,  respectively,  was  attributable to unrealized
gains.  The balance in the statutory  contingency  reserve was $113.8 million at
December 31, 1999, compared to $81.6 million at December 31, 1998.

     Triad's  ability  to write  insurance  depends  on the  maintenance  of its
claims-paying  ability  ratings  and the  adequacy of its capital in relation to
risk in force. A significant  reduction of capital or a significant  increase in
risk may impair  Triad's  ability  to write  additional  insurance.  A number of
states also  generally  limit Triad's  risk-to-capital  ratio to 25-to-1.  As of
December 31, 1999, Triad's  risk-to-capital ratio was 15.4-to-1,  as compared to
16.2-to-1  at December 31, 1998,  and  14.8-to-1  for the industry as a whole at
December 31, 1998, the latest industry data available.

     The  Company is  undertaking  modifications  and  upgrades  to enhance  its
computer systems and  technological  capabilities.  The Company expects to incur
approximately $5.7 million for this system conversion and upgrade (approximately
$4.3 million in  capitalized  costs have been  incurred for the project  through
December 31, 1999) and is funding the project through cash flow from operations.

     The Company has  experienced  no  significant  disruptions  in its computer
systems,  third party systems,  or other systems with which the Company conducts
business relating to date- related issues.  All critical systems were tested for
Year 2000 Compliance  before year end 1999 and all costs relating to the testing
were expensed as incurred and were immaterial.



                                       46

<PAGE>


ITEM 7.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF
          FINANCIAL CONDITION AND RESULTS OF OPERATION -- CONTINUED


SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995

     Management's  Discussion  and  Analysis  and this  Report  contain  forward
looking statements relating to future plans, expectations, and performance which
involve  various  risks and  uncertainties,  including  but not  limited  to the
following:  interest  rates may  increase  from their  current  levels;  housing
transactions  and mortgage  issuance  may  decrease  for many reasons  including
changes in interest rates or economic conditions; the Company's market share may
change as a result of changes in underwriting  criteria or competitive  products
or rates;  the amount of new  insurance  written could be 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;  the  Company's  financial  condition  and  competitive  position  could be
affected by legislation  impacting the mortgage guaranty  industry  specifically
and the  financial  services  industry in general;  rating  agencies  may revise
methodologies  for determining the Company's  claims-paying  ability 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 new  insurance
written  and the  growth of  insurance  in force or risk in force as well as the
performance  of  the  Company  may be  adversely  impacted  by  the  competitive
environment in the private mortgage industry, including the type, structure, and
pricing of products and services offered by the Company and its competitors; the
Company's  performance  may be  impacted  by changes in the  performance  of the
financial markets and general economic conditions. Economic downturns in regions
where Triad's risk is more concentrated could have a particularly adverse effect
on Triad's financial condition and loss development. Accordingly, actual results
may differ from those set forth in the forward- looking statements. Attention is
also directed to other risk factors set forth in documents  filed by the Company
with the Securities and Exchange Commission.

                                       47

<PAGE>



ITEM 8.   FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

     The Financial Statements and Supplementary Data are presented in a separate
section of this report.


ITEM 9.   CHANGES IN AND DISAGREEMENTS WITH
          ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

     None.


                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

     Information  regarding  directors and nominees for directors of the Company
is included in the  Company's  Proxy  Statement  for the 2000 Annual  Meeting of
Stockholders, and is hereby incorporated by reference.

     For information regarding the executive officers of the Company,  reference
is made to the section entitled  "Executive  Officers of the Company" in Part I,
Item 1 of this Report.

ITEM 11.  EXECUTIVE COMPENSATION.

     This  information is included in the Company's Proxy Statement for the 2000
Annual Meeting of Stockholders, and is hereby incorporated by reference.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

     This  information is included in the Company's Proxy Statement for the 2000
Annual Meeting of Stockholders, and is hereby incorporated by reference.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

     This  information is included in the Company's Proxy Statement for the 2000
Annual Meeting of Stockholders, and is hereby incorporated by reference.


                                       48
<PAGE>


                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT
          SCHEDULES, AND REPORTS ON FORM 8-K.

         (a)(1)and (2) The  response to this  portion of Item 14 is submitted as
                       a separate section of this report.

         (a)(3) Listing of Exhibits-- The response to this portion of Item 14 is
                submitted as a separate section of this report.

         (b) Reports on Form 8-K.

                 No  reports on form 8-K were filed  during  the  quarter  ended
                 December 31, 1999.

         (c)  Exhibits-- The response to this portion of Item 14 is submitted as
              a separate section of this report.

         (d)  Financial  Statement  Schedules--  The response to this portion of
              Item 14 is submitted as a separated section of this report.





















                                       49

<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 23rd day of
March, 2000.

                                       By /s/ Darryl W. Thompson
                                       -------------------------
                                       Darryl W. Thompson
                                       President and Chief Executive Officer

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been  signed  below on the 23rd day of March,  2000 by the  following
persons on behalf of the Registrant in the capacities indicated.


         SIGNATURE                        TITLE

/s/ William T. Ratliff, III        Chairman of the Board
---------------------------
William T. Ratliff, III

/s/ Darryl W. Thompson             President, Chief Executive Officer, and
---------------------------        Director
Darryl W. Thompson

/s/ Ron D. Kessinger               Executive Vice President and Chief Financial
---------------------------        Officer
Ron D. Kessinger

/s/ Michael R. Oswalt              Senior Vice President, Controller, Treasurer,
---------------------------        and Principal Accounting Officer
Michael R. Oswalt

/s/ David W. Whitehurst            Director
---------------------------
David W. Whitehurst

/s/ Robert T. David                Director
---------------------------
Robert T. David

/s/ Raymond H. Elliott             Director
---------------------------
Raymond H. Elliott


                                       50
<PAGE>



                           ANNUAL REPORT ON FORM 10-K

                ITEM 8, ITEM 14(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, 1999

                               TRIAD GUARANTY INC.

                          WINSTON-SALEM, NORTH CAROLINA























                                       51

<PAGE>



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES

                              (ITEM 14(A) 1 AND 2)



CONSOLIDATED FINANCIAL STATEMENTS                                         Page
---------------------------------                                         ----
Report of Independent Auditors..........................................   55
Consolidated Balance Sheets at December 31, 1999 and 1998............... 56 - 57
Consolidated Statements of Income for each of the
   three years in the period ended December 31, 1999....................   58
Consolidated Statements of Changes in Stockholders' Equity
   for each of the three years in the period ended December 31, 1999....   59
Consolidated Statements of Cash Flows for each of the three years in
   the period ended December 31, 1999...................................   60
Notes to Consolidated Financial Statements.............................. 61 - 78

FINANCIAL STATEMENT SCHEDULES
-----------------------------
Schedules  at and for each of the three years in the period  ended  December 31,
1999

   Schedule I - Summary of Investments - Other Than Investments
     in Related Parties.................................................   79
   Schedule II - Condensed Financial Information of Registrant.......... 80 - 84
   Schedule IV - Reinsurance............................................   85


All other schedules are omitted since the required information is not present or
is not present in amounts sufficient to require submission of the schedules,  or
because the  information  required is  included  in the  consolidated  financial
statements and notes thereto.


                                       52

<PAGE>


                                INDEX TO EXHIBITS
                                 (ITEM 14(A) 3)

Exhibit
Number     Description of Exhibit
------     ----------------------
  3.1     Certificate of  Incorporation  of the  Registrant,  as amended (7)
           (Exhibit 3.1)

  3.2     By-Laws of the Registrant (1) (Exhibit 3(b))

  4.1     Form of Common Stock  certificate  (1) (Exhibit 4(a))

  4.2     Indenture Between Triad Guaranty Inc. and Banker's Trust Co.(8)
           (Exhibit 4.2)
 10.1     1993 Long-Term Stock Incentive Plan (1)(3) (Exhibit 10(a))

 10.2     Proportional Reinsurance Agreement between Triad Guaranty Insurance
            Corporation and PMI Mortgage Insurance Co. (1) (Exhibit 10(b))

 10.3     Agreement for Administrative Services among Triad Guaranty Insurance
            Corporation and Collateral Investment Corp. and Collateral Mortgage,
            Ltd. (1)(Exhibit 10(c))

 10.4     Investment Advisory Agreement between Triad Guaranty Insurance
            Corporation and Collateral Mortgage, Ltd. (1) (Exhibit 10(d))

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

 10.7     Employment Agreement between the Registrant and Darryl W. Thompson
            (2)(3) (Exhibit 10.7)

 10.8     Employment Agreement between the Registrant and John H. Williams (2)
            (3)(Exhibit 10.8)

 10.10    Employment Agreement between the Registrant and Henry B. Freeman (2)
            (3)(Exhibit 10.10)

 10.11    Employment Agreement between the Registrant and Ron D. Kessinger (2)
            (3)(Exhibit 10.11)

 10.13    Proportional Reinsurance Agreement between Triad Guaranty Insurance
            Corporation and PMI Mortgage Insurance Co. (4) (Exhibit 10.13)

 10.15    Excess of Loss Reinsurance  Agreement  between Triad Guaranty
            Insurance  Corporation  and  National  Union  Fire  Insurance
            Company of Pittsburgh, PA..(5) (Exhibit 10.15)

 10.16    Economic Value Added Incentive Bonus Program (Senior Management)
            (6) (Exhibit 10.16)

                                       53
<PAGE>


 10.17    Amendment to Employment Agreement between the Registrant and Darryl W.
            Thompson (3)(6) (Exhibit 10.17)

 10.18    Amendment to Employment Agreement between the Registrant and John H.
            Williams (3)(6) (Exhibit 10.18)

 10.19    Amendment to Employment Agreement between the Registrant and Henry B.
            Freeman (3)(6) (Exhibit 10.19)

 10.20    Amendment to Employment Agreement between the Registrant and Ron D.
            Kessinger (3)(6) (Exhibit 10.20)

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

*21.1     Subsidiaries of the Registrant (Exhibit 21.1)

*23.1     Consent of Ernst & Young LLP (Exhibit 23.1)

*27.1     Financial Data Schedule (Exhibit 27.1)

-----------------

* 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 1994 Form 10-K.

(5)  Incorporated  by reference to the exhibit  identified  in  parentheses,
     filed as an exhibit in the 1995 Form 10-K.

(6)  Incorporated  by reference to the exhibit  identified  in  parentheses,
     filed as an exhibit in the 1996 Form 10-K.

(7)  Incorporated  by reference to the exhibit  identified  in  parentheses,
     filed as an exhibit in the June 30, 1997 Form 10-Q.

(8)  Incorporated  by reference to the exhibit  identified  in  parentheses,
     filed as an exhibit in the 1997 Form 10-K.

                                       54

<PAGE>

                         Report of Independent Auditors


Board of Directors
Triad Guaranty Inc.


We have audited the accompanying  consolidated  balance sheets of Triad Guaranty
Inc.  and  subsidiaries  as of  December  31,  1999 and  1998,  and the  related
consolidated  statements of income,  changes in stockholders'  equity,  and cash
flows for each of the three years in the period ended  December 31, 1999.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting  the amounts and  disclosures in the financial  statements.  An audit
also includes assessing the accounting principles used and significant estimates
made by  management,  as well as  evaluating  the  overall  financial  statement
presentation.  We believe  that our audits  provide a  reasonable  basis for our
opinion.

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial  position of Triad Guaranty
Inc.  and  subsidiaries  at  December  31, 1999 and 1998,  and the  consolidated
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 1999 in  conformity  with  accounting  principles
generally accepted in the United States.

                                                       /s/ Ernst & Young LLP
                                                       ---------------------
                                                       Ernst & Young LLP

Raleigh, North Carolina
January 19, 2000


                                       55
<PAGE>


                               TRIAD GUARANTY INC.

                           CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>

                                                                           December 31
                                                                     1999                1998
                                                                ----------------------------------
<S>                                                               <C>                <C>
Assets
Invested assets:
   Securities available-for-sale, at fair value:
      Fixed maturities (amortized cost:
         1999-$173,978,864; 1998-$153,868,237)                    $164,579,416       $157,391,829
      Equity securities (cost: 1999-$10,952,390;
        1998-$11,550,510)                                           13,075,648         14,024,012
   Short-term investments                                           13,908,666          5,885,192
                                                                ----------------------------------
                                                                   191,563,730        177,301,033

Cash                                                                   215,553            444,200
Real estate                                                            145,515                  -
Accrued investment income                                            2,591,612          2,258,878
Deferred policy acquisition costs                                   19,906,877         16,015,559
Property and equipment, at cost less accumulated depreciation
   (1999-$3,009,638; 1998-$2,292,770)                                5,915,262          3,446,656
Prepaid federal income tax                                          35,415,666         25,256,666
Reinsurance recoverable                                                 29,980            610,817
Other assets                                                         7,356,357          5,178,627










                                                                ----------------------------------
Total assets                                                      $263,140,552       $230,512,436
                                                                ==================================
</TABLE>


                                       56
<PAGE>






<TABLE>
<CAPTION>


                                                                           December 31
                                                                     1999               1998
                                                                 --------------------------------
<S>                                                               <C>                <C>
Liabilities and stockholders' equity
Liabilities:
   Losses and loss adjustment expenses                            $ 14,751,348       $ 12,142,990
   Unearned premiums                                                 6,831,290          7,054,737
   Amounts payable to reinsurer                                        319,294              5,341
   Current taxes payable                                                70,272             45,787
   Deferred income taxes                                            41,750,341         33,187,544
   Unearned ceding commission                                          400,521            621,161
   Long-term debt                                                   34,461,979         34,457,080
   Accrued interest on debt                                          1,274,972          1,274,972
   Accrued expenses and other liabilities                            6,208,079          4,191,484
                                                                 --------------------------------
Total liabilities                                                  106,068,096         92,981,096

Commitments and contingencies (Note 5 and 7)

Stockholders' equity:
   Preferred stock, par value $.01 per share - authorized
     1,000,000 shares, no shares issued and outstanding                      -                  -
   Common stock, par value $.01 per share - authorized
     32,000,000 shares, issued and outstanding
     13,303,194 shares at December 31, 1999 and
     13,408,869 at December 31, 1998                                   133,032            134,089
   Additional paid-in capital                                       61,972,312         61,538,613
   Accumulated other comprehensive income, net of income
     tax asset of $2,546,666 at December 31, 1999 and
     income tax liability of $2,101,170 at December 31, 1998        (4,723,775)         3,907,920
   Deferred compensation                                               (69,414)                 -
   Retained earnings                                                99,760,301         71,950,718
                                                                 --------------------------------
Total stockholders' equity                                         157,072,456        137,531,340
                                                                 --------------------------------
Total liabilities and stockholders' equity                        $263,140,552       $230,512,436
                                                                 ================================
</TABLE>


                            See accompanying notes.

                                       57
<PAGE>
                               TRIAD GUARANTY INC.

                        CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>

                                                      Year ended December 31
                                              1999              1998             1997
                                           ----------------------------------------------
<S>                                        <C>               <C>              <C>
Revenue:
   Premiums written:
     Direct                                $65,380,631       $52,973,589      $40,082,507
     Assumed                                    11,377            13,052           20,061
     Ceded                                  (1,665,179)       (1,089,955)      (1,772,039)
                                           ----------------------------------------------
   Net premiums written                     63,726,829        51,896,686       38,330,529
   Change in unearned premiums                 242,971           925,045          191,163
                                           ----------------------------------------------
Earned premiums                             63,969,800        52,821,731       38,521,692

Net investment income                       10,545,663         9,289,026        6,234,142
Net realized investment gains                1,153,191           880,502           34,330
Other income                                    13,039            13,652            7,716
                                           ----------------------------------------------
                                            75,681,693        63,004,911       44,797,880
Losses and expenses:
   Losses and loss adjustment expenses       7,121,002         7,005,420        5,317,812
   Reinsurance recoveries                       (9,686)            3,198         (140,734)
                                           ----------------------------------------------
Net losses and loss adjustment expenses      7,111,316         7,008,618        5,177,078


Interest expense on debt                     2,779,915         2,554,126                -
Amortization of deferred policy
  acquisition costs                          6,955,273         5,954,915        4,120,469
Other operating expenses (net of
  acquisition costs deferred)               15,060,376        12,434,890       10,256,815
                                           ----------------------------------------------
                                            31,906,880        27,952,549       19,554,362
                                           ----------------------------------------------
Income before income taxes                  43,774,813        35,052,362       25,243,518

Income taxes:
   Current                                      24,166            38,928            2,613
   Deferred                                 13,340,340        10,639,361        7,999,081
                                           ----------------------------------------------
                                            13,364,506        10,678,289        8,001,694
                                           ----------------------------------------------
Net income                                 $30,410,307       $24,374,073      $17,241,824
                                           ==============================================

Earnings per common and common
  equivalent share:
     Basic                                 $      2.28       $     1.83       $     1.30
     Diluted                               $      2.23       $     1.76       $     1.26
                                           ==============================================
Shares used in computing earnings per
  common and common equivalent share:
     Basic                                  13,312,104        13,342,749       13,291,160
     Diluted                                13,640,716        13,843,382       13,713,538
                                           ==============================================
</TABLE>

                            See accompanying notes.

                                       58
<PAGE>
                               TRIAD GUARANTY INC.

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
                                                      Additional  Accumulated Other
                                           Common      Paid-In      Comprehensive      Deferred         Retained
                                            Stock      Capital          Income       Compensation       Earnings        Total
                                           ---------------------------------------------------------------------------------------
<S>                                        <C>         <C>             <C>             <C>            <C>             <C>
 BALANCE AT DECEMBER 31, 1996              $ 66,453    $59,346,832     $ 1,568,800     $        -     $30,697,951      $91,680,036
   Net income                                     -              -               -              -      17,241,824       17,241,824
   Other comprehensive income - net
     of tax:
       Change in unrealized gain                  -              -       2,836,515              -               -        2,836,515
                                                                                                                      ------------
   Comprehensive income                           -              -               -              -               -       20,078,339
   Issuance of 2,499 shares of common
     stock under stock option plans              25         22,391               -              -               -           22,416
   Two-for-one stock split effected
     in the form of a 100% stock
     dividend                                66,459              -               -              -         (66,459)               -
                                           ---------------------------------------------------------------------------------------
 BALANCE AT DECEMBER 31, 1997               132,937     59,369,223       4,405,315              -      47,873,316      111,780,791
   Net income                                     -              -               -              -      24,374,073       24,374,073
   Other comprehensive income - net
     of tax:
       Change in unrealized gain                  -              -        (497,395)             -               -         (497,395)
                                                                                                                      ------------
   Comprehensive income                           -              -               -              -               -       23,876,678
   Issuance of 122,648 shares of common
     stock under stock option plans           1,227        954,629               -              -               -          955,856
   Tax effect of exercise of
     non-qualified stock options                  -        916,711               -              -               -          916,711
   Purchase and subsequent retirement of
     15,000 shares of common stock             (150)             -               -              -        (296,671)        (296,821)
   Issuance of 7,500 shares of
     restricted stock                            75        298,050               -              -               -          298,125
                                           ---------------------------------------------------------------------------------------
 BALANCE AT DECEMBER 31, 1998               134,089     61,538,613       3,907,920              -      71,950,718      137,531,340
   Net income                                     -              -               -              -      30,410,307       30,410,307
   Other Comprehensive income - net
     of tax:
       Change in unrealized gain                  -              -      (8,631,695)             -               -       (8,631,695)
                                                                                                                      ------------
   Comprehensive income                                                                                                 21,778,612
   Issuance of 34,500 shares of common
     stock under stock option plans             345        199,928               -              -               -          200,273
   Tax effect of exercise of
     non-qualified stock options                  -        129,706               -              -               -          129,706
   Purchase and subsequent retirement of
     146,000 shares of common stock          (1,460)             -               -              -      (2,600,724)      (2,602,184)
   Issuance of 5,825 shares of
     restricted stock                            58        104,065               -       (104,123)              -                -
   Amortization of deferred
     compensation                                 -              -               -         34,709               -           34,709
                                           ---------------------------------------------------------------------------------------
 BALANCE AT DECEMBER 31, 1999              $133,032    $61,972,312     $(4,723,775)    $  (69,414)    $99,760,301     $157,072,456
                                           =======================================================================================
</TABLE>

                            See accompanying notes.

                                       59
<PAGE>

                               TRIAD GUARANTY INC.

                      CONSOLIDATED STATEMENTS OF CASH FLOWs
<TABLE>
<CAPTION>
                                                                  Year ended December 31
                                                           1999              1998              1997
                                                       ------------------------------------------------
<S>                                                     <C>             <C>               <C>
OPERATING ACTIVITIES
Net income                                             $ 30,410,307       $24,374,073      $ 17,241,824
Adjustments to reconcile net income to net cash
  provided by operating activities:
     Loss and unearned premium reserves                   2,384,911         2,248,974         2,426,878
     Accrued expenses and other liabilities               2,033,465         1,450,310           901,991
     Current taxes payable                                   24,485            42,469             1,722
     Amounts due to/from reinsurer                          875,266          (547,469)          378,771
     Accrued investment income                             (332,734)         (798,710)         (333,526)
     Policy acquisition costs deferred                  (10,846,591)       (9,383,119)       (6,509,427)
     Amortization of policy acquisition costs             6,955,273         5,954,915         4,120,469
     Net realized investment gains                       (1,153,191)         (880,502)          (34,330)
     Provision for depreciation                             720,456           750,097           621,050
     Accretion of discount on investments                (1,046,470)       (1,013,820)         (620,762)
     Deferred income taxes                               13,340,340        10,557,543         8,000,081
     Prepaid federal income taxes                       (10,159,000)       (8,964,000)       (6,300,000)
     Unearned ceding commission                            (220,640)          621,161           (80,573)
     Accrued interest on debt                                     -         1,274,972                 -
     Other assets                                        (2,158,206)       (2,559,112)       (1,914,971)
     Other operating activities                             (50,215)          192,489                 -
                                                       ------------------------------------------------
Net cash provided by operating activities                30,777,456        23,320,271        17,899,197

INVESTING ACTIVITIES
Securities available-for-sale:
      Purchases - fixed maturities                      (45,489,517)      (74,664,883)      (25,487,708)
      Sales  - fixed maturities                          26,280,714        17,449,277        16,186,544
      Purchases - equities                               (3,216,099)       (7,507,782)       (3,835,769)
      Sales - equities                                    5,035,504         5,591,607         1,678,286
Purchases of property and equipment                      (3,191,320)       (1,665,430)       (1,431,278)
                                                       ------------------------------------------------
Net cash used in investing activities                   (20,580,718)      (60,797,211)      (12,889,925)

FINANCING ACTIVITIES
Proceeds from issuance of long-term debt                          -        34,452,898                 -
Retirement of common stock                               (2,602,184)         (296,821)                -
Proceeds from exercise of stock options                     200,273           955,856            22,416
                                                       ------------------------------------------------
Net change by financing activities                       (2,401,911)       35,111,933            22,416
Net change in cash and short-term investments             7,794,827        (2,365,007)        5,031,688
Cash and short-term investments at beginning of year      6,329,392         8,694,399         3,662,711
                                                       ------------------------------------------------
Cash and short-term investments at end of year          $14,124,219     $   6,329,392     $   8,694,399
                                                       ================================================

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
  Income taxes and United States
      Mortgage Guaranty Tax and Loss Bonds              $10,158,677     $   8,963,726     $   6,299,891
  Interest                                              $ 2,775,017     $   1,274,972                 -
Non-cash investing and finance activities:
  Exchange of restricted common stock for
   intangible assets                                              -     $     298,125                 -
</TABLE>

See accompanying notes.

                                       60
<PAGE>

                               TRIAD GUARANTY INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                                DECEMBER 31, 1999


1. ACCOUNTING POLICIES

NATURE OF BUSINESS

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

BASIS OF PRESENTATION

The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with generally  accepted  accounting  principles,  which vary in some
respects from statutory  accounting  practices which are prescribed or permitted
by the various insurance departments.

CONSOLIDATION

The consolidated financial statements include the amounts of Triad Guaranty Inc.
and  its  wholly-owned   subsidiaries,   Triad  Guaranty  Insurance  Corporation
("Triad") and Triad  Guaranty  Assurance  Corporation  ("TGAC"),  a wholly-owned
subsidiary of Triad Guaranty Insurance Corporation. All significant intercompany
accounts and transactions have been eliminated.

In November 1999, Triad incorporated Triad Re Insurance Corporation ("Triad Re")
as a wholly-owned sponsored captive reinsurance company domiciled in Vermont. As
of December 31, 1999, no business activity had occurred in Triad Re.

USE OF ESTIMATES

The  preparation of the  consolidated  financial  statements in conformity  with
generally accepted  accounting  principles requires management to make estimates
and assumptions that affect the amounts  reported in the consolidated  financial
statements  and  accompanying  notes.  Actual  results  could  differ from those
estimates.

INVESTMENTS

Securities  classified  as  "available-for-sale"  are  carried at fair value and
unrealized  gains and  losses on such  securities  are  reported  as a  separate
component of accumulated other  comprehensive  income. The Company does not have
any securities classified as "held-to-maturity" or "trading".

                                       61
<PAGE>


1. ACCOUNTING POLICIES (CONTINUED)

Fair value generally represents quoted market value prices for securities traded
in the  public  market or prices  analytically  determined  using bid or closing
prices for securities not traded in the public marketplace.  Realized investment
gains or  losses  are  determined  on a  specific  identification  basis and are
included in net income. Short-term investments are defined as short-term, highly
liquid investments both readily  convertible to known amounts of cash and having
maturities of three months or less upon acquisition by the Company.

DEFERRED POLICY ACQUISITION COSTS

The costs of acquiring new business,  principally commissions and certain policy
underwriting  and issue  costs,  which  generally  vary  with and are  primarily
related to the production of new business,  are deferred.  Amortization  of such
policy  acquisition costs is charged to expense in proportion to premium revenue
recognized  over the estimated  policy life. The Company reviews the persistency
of  policies  in force and  makes  appropriate  adjustments  to  reflect  policy
cancellations.

PROPERTY AND EQUIPMENT

Property and  equipment is recorded at cost and is  amortized  principally  on a
straight-line  basis over the  estimated  useful  lives of  depreciable  assets.
Property  and  equipment  primarily  consists of  furniture  and  equipment  and
computer hardware and software.

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

Reserves are provided for the estimated  costs of settling  claims in respect of
loans reported to be in default and estimates of loans in default which have not
been reported to the Company. Consistent with industry accounting practices, the
Company does not  establish  loss  reserves for future  claims on insured  loans
which are not currently in default.  Loss reserves are established by management
using  historical  experience  and by making various  assumptions  and judgments
about the  ultimate  amount to be paid on loans in default.  The  estimates  are
continually  reviewed and, as adjustments to these liabilities become necessary,
such adjustments are reflected in current operations.

                                       62
<PAGE>


1. ACCOUNTING POLICIES (CONTINUED)

REINSURANCE

Certain  premiums  and  losses  are  assumed  from and ceded to other  insurance
companies under various  reinsurance  agreements.  Reinsurance  premiums,  claim
reimbursement, and reserves related to reinsurance business are accounted for on
a basis  consistent  with those used in  accounting  for the  original  policies
issued and the terms of the reinsurance contracts. The Company receives a ceding
commission in connection with ceded reinsurance. The ceding commission is earned
on a monthly pro rata basis in the same manner as the premium and is recorded as
a reduction of other operating  expenses.  The reinsurance  treaties provide for
profit  commissions on ceded reinsurance based on the loss ratio associated with
the business ceded.

INCOME TAXES

The Company uses the asset and liability  method of accounting for income taxes.
Under the asset and liability  method,  deferred tax assets,  net of a valuation
allowance,  and  deferred  tax  liabilities  are  recognized  for the future tax
consequences   attributable  to  differences  between  the  financial  statement
carrying  amounts of existing assets and  liabilities  and their  respective tax
bases.  Deferred tax assets and liabilities are measured using enacted tax rates
expected  to apply to  taxable  income  in the  years in which  those  temporary
differences are expected to be recovered or settled,  and the effect on deferred
tax assets and  liabilities  of a change in tax rates is recognized in income in
the period that includes the enactment date.

Triad purchases  ten-year  non-interest  bearing United States Mortgage Guaranty
Tax and Loss  Bonds  ("Tax and Loss  Bonds")  in lieu of paying  federal  income
taxes.  The  purchase of these Tax and Loss Bonds is treated as prepaid  federal
income  taxes,  since  the  payment  for Tax and  Loss  Bonds is  essentially  a
prepayment of federal income taxes that will become due at a later date.

INCOME RECOGNITION

The Company  writes  policies  that are  guaranteed  renewable  contracts at the
borrower's option on single premium,  annual premium, and monthly premium bases.
The Company does not have the option to reunderwrite these contracts. For annual
payment policies,  the first year premium exceeds the renewal premium.  Premiums
written  on annual  policies  are  earned on a monthly  pro rata  basis.  Single
premium  policies  covering more than one year are amortized  over the estimated
policy life in accordance  with the  expiration of risk.  Premiums  written on a
monthly basis are generally earned in the month that coverage is provided.

                                       63
<PAGE>



1. ACCOUNTING POLICIES (CONTINUED)

STOCK OPTIONS

The Company  grants stock options for a fixed number of shares to employees with
an exercise  price equal to or greater  than the fair value of the shares at the
date of grant.  The Company  accounts for stock option grants in accordance with
APB Opinion No. 25, Accounting for Stock Issued to Employees,  and, accordingly,
recognizes no compensation expense for the stock option grants.

EARNINGS PER SHARE

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

COMPREHENSIVE INCOME

The only  element of other  comprehensive  income  applicable  to the Company is
changes  in   unrealized   gains  and  losses  on   securities   classified   as
available-for-sale,  which are  displayed  in the  following  table,  along with
related tax effects.

                                        1999          1998            1997
                                    -----------------------------------------
Unrealized gains (losses) arising
   during the period, before taxes  $(12,126,338)    $ 115,278    $ 4,398,198
   Income taxes                        4,244,218       (40,347)    (1,539,369)
                                    -----------------------------------------
Unrealized gains (losses) arising
   during the period, net of taxes    (7,882,120)       74,931      2,858,829
                                    -----------------------------------------
Less reclassification adjustment:
   Gains realized in net income        1,153,191       880,502         34,330
   Income taxes                         (403,616)     (308,176)       (12,016)
                                    -----------------------------------------
Reclassification adjustment for
   gains realized in net income          749,575       572,326         22,314
                                    -----------------------------------------
Other comprehensive income - change
   in unrealized gains              $ (8,631,695)    $(497,395)   $ 2,836,515
                                    =========================================

                                       64
<PAGE>


1. ACCOUNTING POLICIES (CONTINUED)

RECLASSIFICATION

Certain amounts in the prior year have been  reclassified to conform to the 1999
presentation.  Specifically,  the  purchases  of Tax and Loss  Bonds  have  been
treated as prepaid federal income taxes and a reclassification  has been made to
the 1998 Balance  Sheet to include this prepaid  federal  income tax as an asset
and to record  the  corresponding  deferred  tax  liability.  The change had the
effect on increasing  both assets and liabilities by $25,256,666 at December 31,
1998.   These   reclassifications   have  no  effect  on   previously   reported
stockholders' equity or net income.

2. INVESTMENTS

The amortized cost and the fair value of investments are as follows:
<TABLE>
<CAPTION>

                                                    Gross            Gross
                                Amortized        Unrealized        Unrealized          Fair
                                   Cost             Gains            Losses            Value
                               -----------------------------------------------------------------
<S>                             <C>               <C>             <C>               <C>
AT DECEMBER 31, 1999
Available-for-sale securities:
   Fixed maturity securities:
     Corporate                  $ 41,380,256      $  132,060      $ 3,016,858       $ 38,495,458
     U.S. Government               7,106,820          82,992           85,856          7,103,956
     Mortgage-backed               1,112,041          31,025                -          1,143,066
     State and municipal         124,379,747         492,756        7,035,567        117,836,936
                               -----------------------------------------------------------------
Total                            173,978,864         738,833       10,138,281        164,579,416
   Equity securities              10,952,390       2,899,342          776,084         13,075,648
                               -----------------------------------------------------------------
Total                           $184,931,254      $3,638,175      $10,914,365       $177,655,064
                               =================================================================

AT DECEMBER 31, 1998
Available-for-sale securities:
   Fixed maturity securities:
     Corporate                  $ 36,386,473      $  599,664      $ 1,688,249       $ 35,297,888
     U.S. Government               8,587,562         340,609                -          8,928,171
     Mortgage-backed               1,359,163          52,768                -          1,411,931
     State and municipal         107,535,039       4,317,425           98,625        111,753,839
                               -----------------------------------------------------------------
Total                            153,868,237       5,310,466        1,786,874        157,391,829
   Equity securities              11,550,510       3,027,626          554,124         14,024,012
                               -----------------------------------------------------------------
Total                           $165,418,747      $8,338,092      $ 2,340,998       $171,415,841
                               =================================================================
</TABLE>

                                       65
<PAGE>



2. INVESTMENTS (CONTINUED)

The amortized  cost and estimated  fair value of  investments  in fixed maturity
securities, at December 31, 1999, are summarized by stated maturity as follows:

                                              Available-for-Sale
                                              ------------------
                                            Amortized           Fair
                                              Cost              Value
                                          -----------------------------
Maturity:
   One year or less                       $  3,597,288     $  3,614,071
   After one year through five years        20,775,731       20,865,314
   After five years through ten years       26,638,436       25,138,329
   After ten years                         121,855,368      113,818,636
   Mortgage-backed securities                1,112,041        1,143,066
                                          -----------------------------
Total                                     $173,978,864     $164,579,416
                                          =============================

Realized gains and losses on sales of investments are as follows:

                                                Year ended December 31
                                          1999          1998         1997
                                      -------------------------------------
     Securities available-for-sale:
        Fixed maturity securities:
          Gross realized gains        $  468,368     $307,255     $  35,274
          Gross realized losses         (613,015)     (73,329)     (270,818)
        Equity securities:
          Gross realized gains         1,430,241      707,695       360,066
          Gross realized losses         (208,956)     (91,425)     (117,810)
        Other investments:
          Gross realized gains           129,864       30,306        42,520
          Gross realized losses          (53,311)           -       (14,902)
                                      -------------------------------------
     Net realized gains               $1,153,191     $880,502     $  34,330
                                      =====================================

Net unrealized appreciation  (depreciation) on fixed maturity securities changed
by  $(12,923,040),   $(445,759),  and  $2,809,249,  in  1999,  1998,  and  1997,
respectively;  the corresponding  amounts for equity securities were $(350,244),
$(325,711), and $1,571,472.

                                       66
<PAGE>



2. INVESTMENTS (CONTINUED)

Major  categories  of the  Company's  net  investment  income are  summarized as
follows:

                                                   Year ended December 31
                                             1999          1998         1997
                                         --------------------------------------
     Income:
        Fixed maturities                 $ 9,863,671   $8,625,387    $5,849,084
        Preferred stocks                     392,297      280,032       114,610
        Common stocks                        268,091      256,918       279,640
        Cash and short-term investments      465,544      494,565       212,033
                                         --------------------------------------
                                          10,989,603    9,656,902     6,455,367
     Expenses                                443,940      367,876       221,225
                                         --------------------------------------
     Net investment income               $10,545,663   $9,289,026    $6,234,142
                                         ======================================

At December 31, 1999 and 1998,  investments with an amortized cost of $6,445,356
and $6,314,934,  respectively,  were on deposit with state insurance departments
to satisfy regulatory requirements.

3. DEFERRED POLICY ACQUISITION COSTS

An analysis of deferred policy acquisition costs is as follows:

                                                   Year ended December 31
                                              1999        1998         1997
                                         --------------------------------------

    Balance at beginning of year         $16,015,559  $12,587,355   $10,198,397
    Acquisition costs deferred:
       Sales compensation                  7,090,015    6,353,311     4,265,208
       Underwriting and issue expenses     3,756,576    3,029,808     2,244,219
                                         --------------------------------------
                                          10,846,591    9,383,119     6,509,427

    Amortization of acquisition expenses   6,955,273    5,954,915     4,120,469
                                         --------------------------------------
    Net increase                           3,891,318    3,428,204     2,388,958
                                         --------------------------------------
    Balance at end of year               $19,906,877  $16,015,559   $12,587,355
                                         ======================================

                                       67
<PAGE>



4. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Activity  for the reserve for unpaid  losses and loss  adjustment  expenses  for
1999, 1998 and 1997 are summarized as follows:

                                             1999        1998          1997
                                           ------------------------------------
Reserve for losses and loss
   adjustment expenses at January 1,
   net of reinsurance recoverables         $12,115,934  $ 8,909,121  $5,974,664
Incurred  losses and loss  adjustment
   expenses net of reinsurance recoveries
   (principally in respect of default
   notices occurring in):
     Current year                            9,322,142    7,953,412   6,022,700
     Redundancy on prior years              (2,210,826)    (944,794)   (845,622)
                                           ------------------------------------
Total incurred losses and loss
   adjustment expenses                       7,111,316    7,008,618   5,177,078

Loss and loss adjustment expense
   payments net of reinsurance recoveries
   (principally in respect of default
   notices occurring in):
     Current year                              236,250      266,983     210,493
     Prior years                             4,267,808    3,534,822   2,032,128
                                           ------------------------------------
Total loss and loss adjustment
   expense payments                          4,504,058    3,801,805   2,242,621
                                           ------------------------------------

Reserve for losses and loss
   adjustment expenses at December 31,
   net of reinsurance recoverables of
   $28,156, $27,056, $51,290 in 1999,
   1998 and 1997, respectively             $14,723,192  $12,115,934  $8,909,121
                                           ====================================

The foregoing reconciliation shows a redundancy in reserves has emerged for each
of the years presented.  These redundancies  resulted  principally from settling
case-basis reserves on default notices occurring in prior years for amounts less
than expected or reducing incurred but not reported reserves.


                                       68
<PAGE>



5. COMMITMENTS

The Company  leases  certain office  facilities  and equipment  under  operating
leases. Rental expense for all leases was $1,154,671, $902,866, and $835,596 for
1999, 1998, and 1997, respectively. Future minimum payments under noncancellable
operating leases at December 31, 1999 are as follows:

            2000               $1,066,034
            2001                  896,532
            2002                  409,543
            2003                   60,702
            Thereafter                  -
                               ----------
                               $2,432,811
                               ==========

6. FEDERAL INCOME TAXES

Income tax expense  differed  from the amounts  computed by applying the Federal
statutory income tax rate to income before taxes as follows:

                                               1999        1998         1997
                                          -------------------------------------

    Income tax computed at statutory rate $15,321,185  $12,268,326  $ 8,835,231
    Increase (decrease) in taxes
      resulting from:
       Tax-exempt interest                 (2,095,576)  (1,559,067)  (1,002,062)
       Other                                  138,897      (30,970)     168,525
                                          -------------------------------------
    Income tax expense                    $13,364,506  $10,678,289  $ 8,001,694
                                          =====================================


                                       69
<PAGE>



6. FEDERAL INCOME TAXES  (CONTINUED)

The tax effects of temporary  differences that give rise to significant portions
of deferred  tax assets and deferred  tax  liabilities  at December 31, 1999 and
1998 are presented below:

                                             1999              1998
                                          ----------------------------
Deferred tax liabilities
Statutory contingency reserve             $37,382,052      $26,521,712
Deferred policy acquisition costs           6,967,407        5,605,446
Unrealized investment gain                          -        2,101,170
Other                                       2,131,148          861,296
                                          ----------------------------
Total deferred tax liabilities             46,480,607       35,089,624

Deferred tax assets
Exercise of employee stock options          1,046,418          916,711
Unearned premiums                             514,658          536,397
Capital loss carryforward                     149,680                -
Losses and loss adjustment expenses           365,981          341,449
Unrealized investment loss                  2,546,666                -
Other                                         106,863          107,523
                                          ----------------------------
Total deferred tax assets                   4,730,266        1,902,080
                                          ----------------------------
Net deferred tax liability                $41,750,341      $33,187,544
                                          ============================

At December 31, 1999 and 1998,  Triad was  obligated  to purchase  approximately
$726,000 and $154,000, respectively, of Tax and Loss Bonds.

                                       70
<PAGE>



7. INSURANCE IN FORCE, DIVIDEND RESTRICTION, AND STATUTORY RESULTS

Approximately  58% of Triad's net risk in force is  concentrated in seven states
including 12% in California,  11% in Illinois,  9% in Georgia, 8% in Florida, 7%
in Texas,  6% in North  Carolina,  and 5% in Virginia.  While Triad continues to
diversify its risk in force  geographically,  a prolonged  recession in its high
concentration  areas could result in higher  incurred losses and loss adjustment
expenses for Triad.

Insurance  regulations  limit the writing of mortgage  guaranty  insurance to an
aggregate amount of insured risk no greater than twenty-five  times the total of
statutory capital and surplus and the statutory  contingency reserve. The amount
of net risk for  insurance in force at December 31, 1999 and 1998,  as presented
below, was computed by applying the various percentage settlement options to the
insurance in force  amounts  based on the original  insured  amount of the loan.
Triad's ratio is as follows:

                                          1999                 1998
                                     -----------------------------------
     Net risk                        $3,218,850,073       $2,776,205,499
                                     ===================================

     Statutory capital and surplus   $   94,602,027       $   89,539,785
     Contingency reserve                113,813,344           81,614,277
                                     -----------------------------------
     Total                           $  208,415,371       $  171,154,062
                                     ===================================

     Risk-to-capital ratio                15.4 to 1            16.2 to 1
                                     ===================================

Triad and TGAC are each required under the Illinois  Insurance Code (the "Code")
to  maintain  minimum  statutory  capital and  surplus of  $5,000,000.  The Code
permits  dividends to be paid only out of earned surplus and also requires prior
approval of extraordinary  dividends.  An extraordinary dividend is any dividend
or  distribution  of cash or other  property,  the fair  market  value of which,
together with that of other dividends or  distributions  made within a period of
twelve consecutive  months,  exceeds the greater of (a) ten percent of statutory
surplus as regards  policyholders  or (b)  statutory net income for the calendar
year preceding the date of the dividend.  Consolidated  net income as determined
in accordance with statutory accounting practices was $40,019,488,  $31,252,891,
and  $22,916,215  for the  years  ended  December  31,  1999,  1998,  and  1997,
respectively.  At December 31, 1999, the amount of the Company's equity that can
be paid out in dividends to the stockholders is $10,886,099, which is the earned
surplus of Triad on a statutory basis.


                                       71
<PAGE>


8. RELATED PARTY TRANSACTIONS

The Company pays unconsolidated affiliated companies for management, investment,
and other  services.  The total  expense  incurred for such items was  $353,432,
$336,143,  and $284,660 in 1999, 1998, and 1997,  respectively.  In addition, in
1998, the Company began providing certain investment  accounting,  reporting and
maintenance functions for an unconsolidated affiliate. Income earned during 1999
and 1998,  respectively,  for such services was $17,444 and $12,309.  Management
believes  that the income and expenses  incurred for such  services  approximate
costs that the Company and affiliates  would have incurred if those services had
been provided by unaffiliated third parties.

9. EMPLOYEE BENEFIT PLAN

Substantially  all employees  participate in the Company's 401(k) Profit Sharing
Plan.  Under the plan,  employees elect to defer a portion of their wages,  with
the  Company  matching  deferrals  at the  rate  of 50% of the  first  8% of the
employee's salary deferred.  The Company  contributed  $281,728,  $225,797,  and
$151,134 for the years ended December 31, 1999, 1998, and 1997, respectively, to
the plan.

10. REINSURANCE

Certain  premiums  and  losses  are  assumed  from and ceded to other  insurance
companies  under  various   reinsurance   agreements.   The  ceding   agreements
principally  provide Triad with increased capacity to write business and achieve
a more favorable geographic dispersion of risk.


                                       72
<PAGE>


10. REINSURANCE (CONTINUED)

Reinsurance  activity for the years ended  December 31,  1999,  1998,  and 1997,
respectively is as follows:

                                   1999             1998             1997
                                ---------------------------------------------

      Earned premiums ceded     $1,645,655       $1,098,515        $1,809,012
      Losses ceded                   9,686           (3,198)          140,734
      Earned premiums assumed       13,866           15,500            19,804
      Losses assumed                30,057           50,241            67,903


Reinsurance   contracts   do  not  relieve   Triad  from  its   obligations   to
policyholders.  Failure of the reinsurer to honor its obligation could result in
losses to Triad;  consequently,  allowances are  established  for amounts deemed
uncollectible.  Triad  evaluates the financial  condition of its  reinsurers and
monitors credit risk arising from similar  geographic  regions,  activities,  or
economic   characteristics  of  its  reinsurers  to  minimize  its  exposure  to
significant losses from reinsurer insolvency.

11. LONG-TERM STOCK INCENTIVE PLAN

In August 1993 the Company  adopted the 1993 Long-Term Stock Incentive Plan (the
"Plan").  Under the Plan,  certain  directors,  officers,  and key employees are
eligible  to be  granted  various  stock-based  awards.  The number of shares of
common  stock  which  may be  issued  or  sold or for  which  options  or  stock
appreciation rights may be granted under the Plan is 2,100,000 shares.

                                       73
<PAGE>



11. LONG-TERM STOCK INCENTIVE PLAN (CONTINUED)

Information concerning the stock option plan is summarized below:

                                                                    Weighted
                                   Number of        Option           Average
                                    Shares           Price        Exercise Price
                                 -----------------------------------------------

1997
   Outstanding, beginning of year    993,696   $  4.58 -   15.13      $  7.38
   Granted                           184,550     14.81 -   38.27        20.13
   Exercised                           2,999      4.58 -    8.92         7.47
   Outstanding, end of year        1,175,247      4.58 -   38.27         9.39
   Exercisable, end of year          887,462      4.58 -   15.13         6.91

1998
   Outstanding, beginning of year  1,175,247      4.58 -   38.27         9.39
   Granted                           126,675     22.50 -   49.08        42.52
   Exercised                         122,648      4.58 -   20.07         7.79
   Canceled                              667     14.81                  14.81
   Outstanding, end of year        1,178,607      4.58 -   49.08        13.11
   Exercisable, end of year          934,027      4.58 -   49.08         9.05

1999
   Outstanding, beginning of year  1,178,607      4.58 -   49.08        13.11
   Granted                           204,840     17.00 -   23.24        22.05
   Exercised                          34,500      4.58 -   10.17         5.81
   Canceled                           14,500     17.88 -   38.27        30.86
   Outstanding, end of year        1,334,447      4.58 -   49.08        14.48
   Exercisable, end of year        1,069,218      4.58 -   49.08        11.72


                                     74
<PAGE>



11. LONG-TERM STOCK INCENTIVE PLAN (CONTINUED)

Information concerning stock options outstanding and exercisable at December 31,
1999, is summarized below:

                  Outstanding                                   Exercisable

------------------------------------------------------   ----------------------
                                 Weighted-  Weighted-                 Weighted-
                                  Average    Average                   Average
 Number of                       Exercise   Remaining     Number of  Exercisable
  Shares        Option Price      Price       Life         Shares       Price
------------------------------------------------------   ----------------------

   641,650   $  4.58 - $8.92    $  6.20        4.2         641,650    $  6.20
   282,013     10.17 - 17.88      13.07        6.8         226,681      12.12
   291,109     20.07 - 29.44      22.09        8.2         137,528      21.67
    58,900     37.75 - 39.75      39.04        8.2          25,586      38.74
    60,775     41.94 - 49.08      48.11        8.1          37,773      48.56
----------                                               ---------
 1,334,447                                               1,069,218
==========                                               =========


At December  31,  1999,  1,778,580  shares of the  Company's  common  stock were
reserved and 444,133 shares were available for issuance under the Plan.

The options issued under the Plan in 1999,  1998 and 1997 vest over three years.
Certain of the options will immediately vest in the event of a change in control
of the Company.  Options granted under the Plan terminate no later than 10 years
following the date of grant.

Pro forma information required by Financial Accounting Standards Board Statement
No. 123, Accounting for Stock-Based  Compensation,  has been estimated as if the
Company had accounted for stock-based awards under the fair value method of that
Statement.  The fair  value of  options  granted  in  1999,  1998,  and 1997 was
estimated at the date of the grant using a  Black-Scholes  option  pricing model
with the following  weighted-average input assumptions:  risk-free interest rate
of 6.5% for 1999,  5.1% for 1998,  and 5.7% for  1997;  dividend  yield of 0.0%;
expected  volatility  of .42 for  1999,  .40 for 1998,  and .29 for 1997;  and a
weighted-average expected life of the option of seven years.

                                       75
<PAGE>



11. LONG-TERM STOCK INCENTIVE PLAN (CONTINUED)

The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded  options which have no vesting  restrictions  and are fully
transferable.  In addition,  option valuation models require the input of highly
subjective  assumptions  including the expected stock price volatility.  Because
the Company's stock options have  characteristics  significantly  different from
those of traded options, and because changes in the subjective input assumptions
can materially  affect the fair value  estimate,  in management's  opinion,  the
existing models do not necessarily provide a reliable single measure of the fair
value of its employee stock options.

The following table  summarizes the fair value of options granted in 1999, 1998,
and 1997:

                                 Weighted-Average           Weighted-Average
                                  Exercise Price                Fair Value
    Type of Option             1999    1998    1997         1999   1998    1997
----------------------------  ------------------------  -----------------------

Stock Price = Exercise Price  $17.49  $37.87  $18.65       $6.74  $13.42  $5.73
Stock Price < Exercise Price  $23.24  $49.08  $20.78       $5.96  $11.29  $3.88

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

                                         1999          1998           1997
                                       -------------------------------------

Net Income - as reported                $30,410        $24,374       $17,242

Net Income - pro forma                  $29,675        $23,779       $16,937

Earnings per share - as reported:
   Basic                                $ 2.28         $  1.83       $  1.30
   Diluted                              $ 2.23         $  1.76       $  1.26

Earnings per share - pro forma:
   Basic                                $ 2.23         $  1.78       $  1.28
   Diluted                              $ 2.18         $  1.72       $  1.24

                                       76
<PAGE>



12. LONG-TERM DEBT

In January 1998, the Company  completed a $35 million private  offering of notes
due January 15, 2028.  Proceeds  from the  offering,  net of debt issue costs of
$547,102, totaled $34,542,898.  The notes, which represent unsecured obligations
of the Company, bear interest at a rate of 7.9% per annum and are non-callable.

13. FAIR VALUE OF FINANCIAL INVESTMENTS

The carrying values and fair values of financial  instruments as of December 31,
1999 and 1998 are summarized below:

                                     1999                      1998
                       --------------------------   ---------------------------
                         Carrying        Fair         Carrying         Fair
                          Value          Value          Value         Value
                       --------------------------   ---------------------------
FINANCIAL ASSETS
Fixed maturities
   available-for-sale  $164,579,416   $164,579,416   $157,391,829  $157,391,829
Equity securities
   available-for-sale    13,075,648     13,075,648     14,024,012    14,024,012

FINANCIAL LIABILITIES
Long-term debt           34,461,979     32,837,000     34,457,080    38,468,000

The fair values of cash and short-term  investments  approximate  their carrying
values due to their short-term maturity or availability.

The fair values of fixed  maturity  securities and equity  securities  have been
determined using quoted market prices for securities traded in the public market
or prices using bid or closing  prices for  securities  not traded in the public
marketplace. These fair values are disclosed in Note 2.

The fair value of the Company's  long-term  debt is estimated  using  discounted
cash flow analysis,  based on the Company's current incremental  borrowing rates
for similar types of borrowing arrangements.

                                       77
<PAGE>



14. UNAUDITED QUARTERLY FINANCIAL DATA

The following is a summary of the unaudited  quarterly results of operations for
the years ended December 31, 1999 and 1998 (in thousands except per share data):

                                         1999 Quarter
                           ----------------------------------------
                             First     Second     Third     Fourth    Year
                           ---------------------------------------------------

Net premiums written        $14,846   $15,493    $16,635   $16,752  $63,726
Earned premiums              14,986    15,461     16,505    17,018   63,970
Net investment income         2,449     2,637      2,657     2,802   10,545
Net losses incurred           2,915     1,355      1,519     1,322    7,111
Underwriting and other
  expenses                    5,961     6,182      6,253     6,400   24,796
Net income                    6,579     7,445      7,874     8,512   30,410
Basic earnings per share       .49       .56        .59        .64     2.28
Diluted earnings per share     .48       .55        .58        .62     2.23

                                         1998 Quarter
                           ----------------------------------------
                             First     Second     Third     Fourth    Year
                           ---------------------------------------------------

Net premiums written        $11,335   $12,532    $13,372   $14,658  $51,897
Earned premiums              11,930    12,659     13,656    14,577   52,822
Net investment income         2,039     2,326      2,424     2,501    9,290
Net losses incurred           1,477     1,107      1,716     2,709    7,009
Underwriting and other
 expenses                     4,841     5,301      5,423     5,379   20,944
Net income                    5,383     6,045      6,463     6,483   24,374
Basic earnings per share       .40       .45        .48        .48     1.83
Diluted earnings per share     .39       .44        .47        .47     1.76


                                       78
<PAGE>


                                   SCHEDULE I
       SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES
                               TRIAD GUARANTY INC.
                                DECEMBER 31, 1999
<TABLE>
<CAPTION>

                                                                               Amount at
                                                                              Which Shown
                                                    Amortized       Fair      in Balance
Type of Investment                                     Cost         Value        Sheet
                                                   -----------   --------     ----------
                                                          (dollars in thousands)
<S>                                                   <C>        <C>          <C>
Fixed maturity securities, available-for-sale:
  Bonds:
     U.S. Government obligations................      $  7,107   $  7,104     $  7,104
     Mortgage-backed securities.................         1,112      1,143        1,143
     State and municipal bonds..................       124,380    117,837      117,837
     Corporate bonds............................        40,424     37,616       37,616
     Public utilities...........................           956        879          879
                                                      --------   --------     --------
   Total          ..............................       173,979    164,579      164,579
                                                      --------   --------     --------
Equity securities, available-for-sale:
   Common stocks:
       Public utilities.........................           498      1,244        1,244
       Bank, Trust, and Insurance...............           568      1,180        1,180
       Industrial & miscellaneous...............         3,516      4,624        4,624
   Preferred Stock .............................         6,370      6,028        6,028
                                                      --------   --------     --------
    Total.......................................        10,952     13,076       13,076
                                                      --------   --------     --------
Short-term investments..........................        13,909     13,909       13,909
                                                      --------   --------     --------
Total investments other than investments in
 related parties................................      $198,840   $191,564     $191,564
                                                      ========   ========     ========
</TABLE>




                                       79

<PAGE>



           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                            CONDENSED BALANCE SHEETS
                               TRIAD GUARANTY INC.
                                (PARENT COMPANY)

<TABLE>
<CAPTION>

                                                             December 31
                                                      1999                 1998
                                                      ----                 ----
                                                         (dollars in thousands)
<S>                                                <C>                  <C>
Assets:
   Fixed maturities- available-for-sale.....       $  6,511             $  9,439
   Equity securities- available-for-sale....            ---                  271
   Notes receivable from subsidiary.........         25,000               25,000
   Investment in subsidiaries...............        158,499              136,369
   Cash and short-term investments..........          1,433                  943
   Accrued investment income................          1,206                1,225
   Deferred income taxes....................            230                   86
                                                   --------             --------
   Total assets.............................       $192,879             $173,333
                                                   ========             ========

Liabilities and stockholders' equity:
Liabilities:
   Current taxes payable....................       $     70             $     45
   Long-term debt...........................         34,462               34,457
   Accrued interest on long-term debt.......          1,275                1,275
   Accrued expenses and other liabilities...          ---                     25
                                                   --------             --------
   Total liabilities........................         35,807               35,802


Stockholders' equity:
   Common stock.............................            133                  134
   Additional paid-in capital...............         61,972               61,538
   Accumulated other comprehensive income...         (4,724)               3,908
   Deferred compensation....................           (69)                  ---
   Retained earnings........................         99,760               71,951
                                                   --------             --------
Total stockholders' equity..................        157,072              137,531
                                                   --------             --------
Total liabilities and stockholders' equity..       $192,879             $173,333
                                                   ========             ========
</TABLE>

                  See notes to condensed financial statements.


                                       80

<PAGE>



           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                         CONDENSED STATEMENTS OF INCOME
                               TRIAD GUARANTY INC.
                                (PARENT COMPANY)

<TABLE>
<CAPTION>
                                                            Year Ended December 31
                                                        -------------------------------
                                                          1999        1998        1997
                                                          ----        ----        ----
                                                               (dollars in thousands)
<S>                                                     <C>         <C>         <C>
Revenues:
   Net investment income..............................  $ 2,875     $ 2,787     $    22
   Realized investment gains..........................     (124)         14         ---
                                                        -------     -------     -------
                                                          2,751       2,801          22
                                                        -------     -------     -------
Expenses:
   Interest on long-term debt.........................    2,780       2,554         ---
   Operating expenses.................................       35           5           6
                                                        -------     -------     -------
                                                          2,815       2,559           6
                                                        -------     -------     -------
Income (loss) before federal income taxes and
   equity in undistributed income of subsidiaries.....      (64)        242          16

Income Taxes:
   Current............................................       24          38           2
   Deferred...........................................      (46)         42         ---
                                                        -------     -------     -------
                                                            (22)         80           2
                                                        -------     -------     -------

Income (loss) before equity in undistributed income
   of subsidiaries....................................      (42)        162          14
Equity in undistributed income of subsidiaries........   30,452      24,213      17,228
                                                        -------     -------     -------

Net income............................................  $30,410     $24,375     $17,242
                                                        =======     =======     =======
</TABLE>

                  See notes to condensed financial statements.

                                       81

<PAGE>

           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                       CONDENSED STATEMENTS OF CASH FLOWS
                               TRIAD GUARANTY INC.
                                (PARENT COMPANY)
<TABLE>
<CAPTION>
                                                               Year Ended December 31
                                                           ------------------------------
                                                             1999        1998       1997
                                                             ----        ----       ----
                                                                (dollars in thousands)
<S>                                                        <C>         <C>         <C>
Operating Activities
  Net income............................................   $30,410     $24,375     $17,242
  Adjustments  to  reconcile  net  income
  to net  cash  provided  by  operating activities:
    Equity in undistributed income of subsidiaries......   (30,452)    (24,213)    (17,228)
    Accrued investment income...........................        19      (1,225)        ---
    Other assets........................................       ---          56         (40)
    Deferred income taxes...............................       (46)         42         ---
    Current tax payable.................................        25          42           2
    Accrued interest on long-term debt..................       ---       1,275         ---
    Accretion of discount on investments................       (86)       (130)        ---
    Amortization of deferred compensation...............        34         ---         ---
    Amortization of debt issue costs....................         5           4         ---
    Realized investment loss (gain) on securities.......       124         (14)        ---
    Accrued expenses and other liabilities..............       (25)        (10)         30
                                                           -------     -------     -------
  Net cash provided by operating activities.............         8         202           6
Investing Activities
  Securities available-for-sale:
    Fixed maturities:
          Purchases.....................................    (3,682)    (13,909)        ---
          Sales.........................................     6,282       4,276         ---
    Equity securities:
          Purchases.....................................       ---        (300)        ---
          Sales.........................................       284         ---         ---
    Issuance of Surplus Note to subsidiary..............     ---       (25,000)        ---
                                                           -------     -------     -------
  Net cash provided by (used in) investing activities...     2,884     (34,933)        ---
Financing Activities
    Proceeds from issuance of long term debt............       ---      34,453         ---
    Proceeds from exercise of stock options.............       200         956          22
    Retirement of common stock..........................    (2,602)       (297)         --
                                                           -------     -------     -------
  Net cash (used in) provided by financing activities...    (2,402)     35,112          22
                                                           -------     -------     -------
  Increase in cash and short-term investments...........       490         381          28
  Cash and short-term investments at beginning of year..       943         562         534
                                                           -------     -------     -------
  Cash and short-term investments at end of year........   $ 1,433     $   943     $   562
                                                           =======     =======     =======
</TABLE>

                  See notes to condensed financial statements.


                                       82

<PAGE>



           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                               TRIAD GUARANTY INC.
                                (PARENT COMPANY)
                               SUPPLEMENTARY NOTES

NOTE 1

     In the parent company financial statements, the Company's investment in its
subsidiaries  is stated at cost plus  equity in  undistributed  earnings  of the
subsidiaries.  The Company's share of net income of its subsidiaries is included
in income using the equity method.  The  accompanying  Parent Company  financial
statements  should  be read  in  conjunction  with  the  Consolidated  Financial
Statements and Notes to Consolidated  Financial  Statements  included as part of
this Form 10-K.

NOTE 2

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

Note 3

     The  amortized  cost and the fair value of  investments  held by the parent
company are as follows (dollars in thousands):


                                                            Gross         Gross
                                Amortized   Unrealized    Unrealized      Fair
At December 31, 1999              Cost         Gains        Losses        Value
                               ----------   ----------    -----------   --------
Available-for-sale securities:
   Fixed maturity securities:
      Corporate                   $7,155           $22         $666      $6,511
                                  ------       -------      -------      ------
   Total                           7,155            22          666       6,511

      Equity Securities               --            --           --          --
                                  ------       -------      -------      ------
   Total                          $7,155           $22         $666      $6,511
                                  ======       =======      =======      ======


                                               Gross        Gross
                                Amortized   Unrealized    Unrealized      Fair
At December 31, 1998              Cost         Gains        Losses        Value
                               ----------   ----------    -----------   --------
Available-for-sale securities:
   Fixed maturity securities:
      Corporate                $ 9,777            $113         $451      $9,439
                               -------         -------      -------     -------
   Total                         9,777             113          451       9,439

      Equity Securities            300              --           29         271
                               -------         -------      -------     -------
   Total                       $10,077            $113         $480      $9,710
                               =======         =======      =======     =======



                                                          83

<PAGE>



           SCHEDULE II - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
                               TRIAD GUARANTY INC.
                                (PARENT COMPANY)
                               SUPPLEMENTARY NOTES


NOTE 3 (CONTINUED)

Major  categories of the parent  company's  investment  income are summarized as
follows (dollars in thousands):

                                          Year ended December 31

                                        1999        1998      1997
                                        ----        -----     ----
Income:
   Fixed maturities                    $  645      $  679         --
   Equity securities                       18          17         --
   Cash and short-term investments         42          71        $22
   Note receivable from subsidiary      2,225       2,052         --
                                       ------      ------     ------
                                        2,930       2,819         22
Expenses                                   55          32         --
                                       ------      ------     ------
Net investment income                  $2,875      $2,787        $22
                                       ======      ======     ======


NOTE 4

     In January of 1998, the Company completed a $35 million private offering of
notes due January 15, 2028. Proceeds from the offering,  net of debt issue costs
of  $547,102,   totaled  $34,542,898.   The  notes,  which  represent  unsecured
obligations  of the Company,  bear  interest at a rate of 7.9% per annum and are
non-callable.


                                       84

<PAGE>


                            SCHEDULE IV - REINSURANCE

                               TRIAD GUARANTY INC.
                        MORTGAGE INSURANCE PREMIUM EARNED
                  YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997



                                                           Percentage of
                        Ceded To     Assumed                   Amount
             Gross       Other      From Other      Net        Assumed
            Amount     Companies    Companies     Amount       to Net
          --------    ----------    ----------   --------  ------------
                             (dollars in thousands)

1999.....  $65,602      $1,646          $14       $63,970       0.0%
           =======      ======          ===       =======
1998.....  $53,905      $1,099          $16       $52,822       0.0%
           =======      ======          ===       =======
1997.....  $40,311      $1,809          $20       $38,522       0.1%
           =======      ======          ===       =======




                                       85