##### Table of Contents





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

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    December 31, 2008oro

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

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

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

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

Name of Each Exchange on Which RegisteredCommon Stock, par value $0.01 per share

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

Accelerated
    filer o

Non-accelerated
    filer o(Do not check if a smaller
    reporting company)

Smaller reporting company
    þ   Rule 12b-2 o þ
  Rule 13d-3
    Portions of the following document are incorporated

Part of this Form 10-K into which the portions of theby reference into this Form 10-K:

document are incorporated by referenceNone

None




---



##### 





TABLE OF
    CONTENTS
   
 PagePart IItem 1.


Business


1Item 1A.


Risk Factors


16Item 1B.


Unresolved Staff Comments


25Item 2.


Properties


25Item 3.


Legal Proceedings


25Item 4.


Submission of Matters to a Vote of Security
    Holders


25Part IIItem 5.


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


26Item 6.


Selected Financial Data


27Item 7.


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


27Item 7A.


Quantitative and Qualitative Disclosures about
    Market Risk


56Item 8.


Financial Statements and Supplementary Data


56Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


56Item 9A(T).


Controls and Procedures


56Item 9B.


Other Information


57Part IIIItem 10.


Directors, Executive Officers and Corporate
    Governance


57Item 11.


Executive Compensation


59Item 12.


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


70Item 13.


Certain Relationships and Related Transactions,
    and Director Independence


72Item 14.


Principal Accounting Fees and Services


73Part IVItem 15.


Exhibits, Financial Statement Schedules


74Signatures


75Index to Consolidated Financial Statements and
    Financial Statement Schedules


77Exhibit Index


115EX-10.59EX-21.1EX-23.1EX-31.1EX-32.1




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##### Table of Contents



PART I  Item 1.
    Business  Overview
    of Triad
    and/or
      start-up
  Form 10-K.
  (336) 723-1282.
  www.triadguaranty.com Form 10-K, Form 10-Q, Form 8-K,
 1




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##### Table of Contents



Corrective
    Order
      
    Required TGIC to submit a corrective plan to the Division;
    Prohibited all stockholder dividends from TGIC to its parent
    company without the prior approval of the Division;
    Prohibited interest and principal payments on TGICs
    surplus note to its parent company without the prior approval of
    the Division;
    Restricted TGIC from making any payments or entering into any
    transaction that involves the transfer of assets to, or
    liabilities from, any affiliated parties without the prior
    approval of the Division;
    Required TGIC to obtain prior written approval from the Division
    before entering into certain transactions with unaffiliated
    parties;
    Required TGIC to meet with the Division in person or via
    teleconference as necessary; and
    Required TGIC to furnish to the Division certain reports,
    agreements, actuarial opinions and information on an ongoing
    basis at specified times.  Form 10-K.
     2




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Form 10-K
    Overview
    of Market Conditions
          Recent
    Government Initiatives
     3




---



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Form 10-K,
  Mortgage
    Insurance Products
   4




---



##### Table of Contents



Primary
    Insurance
  loan-to-value
    Modified
    Pool Insurance
      Distribution
    Channels
  loan-by-loan
      Cancellation
    of Insurance
   5




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Reinsurance
    excess-of-loss excess-of-loss
   6




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##### Table of Contents



Excess-of-Loss risk-to-capital
  Customers
    Sales
    Contract
    Underwriting
   7




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##### Table of Contents



Competition
    and Market Share
    
    Federal and state governmental and quasi-governmental agencies,
    principally FHA;
    Mortgage lenders that forego MI to self-insure against the risk
    of loss from defaults on all or a portion of their low down
    payment mortgage loans;
    Products designed to avoid MI such as simultaneous seconds or
    piggyback mortgage products (a combination of loans,
    usually issued by the same lender, that allows the balance of
    each individual loan to be at or below 80% of the
    propertys current value); and
    Other MI companies, including Mortgage Guaranty Insurance
    Corporation, Radian Guaranty Inc., PMI Mortgage Insurance Co.,
    United Guaranty Corporation, Genworth Financial, Inc. and
    Republic Mortgage Insurance Company.      Underwriting
    Practices
      Financial
    Strength Rating
   8




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##### Table of Contents



Defaults
    and Claims
  Defaults
          Claims
    
    government and private industry efforts to prevent foreclosures
    through foreclosure moratoriums;
    delays in processing claims by the servicers of the defaulted
    loans due to substantial volume increases in defaults; and
    our ongoing effort to identify fraud, misrepresentation or other
    underwriting violations on loans that are currently in default.   9




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deed-in-lieu
        Loss
    Mitigation
  deeds-in-lieu
 10




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##### Table of Contents



Recent
    Loss Mitigation Initiatives
      
    A proactive outreach by experienced workout specialists to
    contact borrowers in default that are not currently engaged with
    the loan servicer on a workout or mitigation effort. Their focus
    is on understanding the borrowers financial situation and
    developing a recommended loss mitigation path. A variety of
    contacts are attempted and may involve
    door-to-door
    campaigns by field agents. Contacted borrowers are educated on
    the alternatives available to them and, when possible, put in
    contact with the servicers workout/loss mitigation
    departments.
    Providing, in specific situations, preapproved/delegated
    authority to servicers to modify Triad-insured loans. This
    streamlines the process for the servicer and allows it to
    respond to a borrower immediately.
    In certain instances, providing servicer final benefits under
    the insurance policy without requiring a foreclosure proceeding.
    As a result of settlement, coverage on the policy would be
    cancelled, the insured would be provided a performing asset, and
    the borrower would retain title.
    Placement of trained Triad loss mitigation personnel at a
    servicers operational facility. These onsite personnel are
    dedicated to assisting the servicers with workout and mitigation
    efforts on all Triad loans.    state-by-state.
    Loss
    Reserves
   11




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##### Table of Contents



Gross
    Risk in Force
    Geographic
    Dispersion
    Geographic
    Distribution of Risk in Force
  December 31,2008


2007Gross Risk


Rate of


Gross Risk


Rate ofState

in Force %


Default


in Force %


DefaultCalifornia


14.58
%


23.26
%


14.48
%


5.92
%Florida


11.56
%


25.94
%


11.44
%


7.36
%Texas


6.46
%


5.27
%


6.42
%


2.94
%Arizona


5.20
%


17.56
%


5.28
%


4.27
%Illinois


3.91
%


11.15
%


4.02
%


4.57
%North Carolina


3.84
%


5.59
%


3.79
%


3.11
%Georgia


3.54
%


8.47
%


3.55
%


3.82
%Virginia


3.28
%


9.54
%


3.27
%


3.36
%Colorado


3.20
%


6.62
%


3.27
%


3.68
%New Jersey


3.09
%


11.70
%


2.99
%


4.72
%Nevada


3.01
%


21.47
%


2.99
%


5.40
%Washington


2.81
%


6.74
%


2.88
%


1.71
%New York


2.70
%


9.00
%


2.56
%


4.82
%Pennsylvania


2.51
%


6.71
%


2.47
%


3.62
%Maryland


2.41
%


11.24
%


2.37
%


3.54
%All Other States


27.90
%


7.96
%


28.22
%


4.25
%100.00
%






100.00
%       Regulation
   12




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13




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risk-to-capital risk-to-capital
    Form 10-K,
    Available
    Information
  Form 10-K, Form 10-Q, Form 8-K, www.triadguaranty.com www.sec.gov (800) 732-0330.
  Employees
   14




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##### Table of Contents



Executive
    Officers of the Registrant and its Primary
    Subsidiaries
    Name

Position

AgeKenneth W. Jones

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


51Kenneth S. Dwyer

Vice President and Chief Accounting Officer of the Company and
    Triad


58Shirley A. Gaddy

Senior Vice President, Operations of Triad


56Steven J. Haferman

Senior Vice President, Strategic Initiatives and Director of
    Triad


47George Jackson

Vice President, Information Services and Chief Information
    Officer of Triad


42William T. Ratliff, III(1)

Executive Officer of the Company and Triad (through March 10,
    2009)


55Earl F. Wall

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


51     (1)
    
    Mr. Ratliff continues to serve as our Chairman of the Board
    of Directors in a non-executive capacity (see Part II,
    Item 9B., Other Information).  Kenneth W. Jones
  Kenneth S. Dwyer
  Shirley A. Gaddy
  Stephen J. Haferman
  George L. Jackson
 15




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##### Table of Contents



William T. Ratliff, III
  Earl F. Wall
    Item 1A.
    Risk
    Factors  Form 10-K.
  A deeper or prolonged recession in the United States coupled
    with continued tightened credit in mortgage markets may increase
    mortgage defaults and limit opportunities for borrowers to cure
    defaults or for our company to mitigate its losses, which would
    adversely impact the future value of our company.
    In October 2008, we received approval of a corrective plan
    provided to the Division. The corrective plan, among other
    items, provided our best estimate of the financial results of
    Triad through December 31, 2012. Substantial adverse
    changes in the U.S. economy have occurred since we submitted the
    corrective plan, including a continuing decline of home prices,
    increasing unemployment rates, and a continuation of tight
    credit markets. If we are unable to demonstrate to the
    satisfaction of the Division that our financial and operating
    plan will likely produce a solvent run-off, the Division may
    take additional actions regarding Triad that may have a material
    adverse effect on our financial condition or results of
    operations.
 16




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##### Table of Contents



Form 10-K.
    If the Division does not believe that our financial and
    operating plan is likely to produce a solvent run-off, it may
    appoint a conservator or liquidator of Triad for the protection
    of its existing policyholders. Any receivership proceeding
    involving Triad could effectively eliminate all value associated
    with the parent companys ownership of Triad.
    Under terms of the Corrective Order with the Division and the
    terms of the original surplus note, Triad is prohibited from
    making interest payments on its $25 million surplus note to
    the holding company. If the financial condition of Triad
    continues to deteriorate, then the Division will be unable to
    lift that restriction for the foreseeable future, which would
    jeopardize the ability of the holding company to make the
    required interest payments on its $35 million outstanding
    long-term debt.
   17




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There is substantial doubt about our ability to continue as a
    going concern.
      Triad has historically reimbursed its parent company for
    operating expenses incurred on behalf of the operating
    subsidiary under terms of a capital management agreement. Terms
    of the Corrective Order require the approval of the Division for
    all intercompany transactions. If we are unable to obtain the
    Divisions approval for Triad to reimburse certain
    operating costs of the parent company, then the limited assets
    of the parent company will dissipate at a much greater pace,
    which would further jeopardize the ability of the parent company
    to make the required interest payments on its $35 million
    outstanding long-term debt.
    Our operating cash flow consists of net premium received plus
    investment income less losses and expenses paid. We expect a
    deficit in our operating cash flow in 2009 and beyond. During
    2008, we began to reposition our existing investment portfolio
    reflecting our inability to benefit from tax-advantaged
    securities and to match maturities in the investment portfolio
    to expected operating cash flow deficits in 2009 and beyond. In
    2008, the financial markets, including the fixed-maturity debt
    markets, experienced unprecedented turbulence, causing prices to
    drop precipitously from period to period. While we successfully
    completed the repositioning of the majority of the portfolio at
    December 31, 2008, we had approximately $159 million
    of municipal securities remaining in our portfolio that we plan
    to sell in the future. If the proceeds from maturities of
    securities are not sufficient to cover operating cash flow
    deficits we could be forced to liquidate securities which,
    depending on market conditions, may result in realized
    investment losses.
     18




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The Company is currently listed on The NASDAQ Stock Market.
    The NASDAQ Stock Market has certain continued listing
    requirements regarding public float, minimum bid price, and net
    worth, among others. If we are unable to meet these continued
    listing requirements, our common stock may be delisted in which
    case trading would be available only in
    over-the-counter
    markets and stockholder liquidity would be adversely
    affected.
  over-the-counter
  Fannie Mae and Freddie Mac were both placed under the
    conservatorship of FHFA, an agency of the United States
    Government in 2008. They are currently in the process of
    re-examining their capitalization, business practices, rules
    surrounding modifications of existing mortgages, and other items
    that could impact our business during run-off. Changes in the
    business practices or legislation relating to Fannie Mae and
    Freddie Mac could significantly impact our results in
    run-off.
    Risks
    Related to Economic Conditions
  If deteriorating economic conditions alter the frequency and
    severity patterns utilized in our estimates for reserves for
    losses, we may be required to take additional charges to results
    of operations.
     19




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##### Table of Contents



Consistent with industry practice, we provide reserves only
    for loans in default that have been reported to us rather than
    on our estimate of the ultimate loss. As such, our results of
    operations in certain periods could be disproportionately
    affected by the timing of reported defaults.
    During 2008 the United States housing market experienced a
    significant amount of home price depreciation, which had a
    direct negative impact on our loss reserves and paid claims
    during 2008. If home prices continue to decline on a more
    significant or larger geographic basis than what we experienced
    in 2008, we may incur a higher level of losses from paid claims
    and also be required to increase our loss reserves.
   20




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##### Table of Contents



©
  Because a significant portion of our business is sensitive to
    interest rates, a large increase in rates would cause higher
    monthly mortgage payments for borrowers that could potentially
    lead to a greater number of defaults, which would adversely
    impact our business.
      Geographic concentration of our risk in force in certain
    distressed markets has resulted in increased defaults and higher
    risk in default from the significantly larger loans in these
    states. Ongoing house price depreciation in these distressed
    markets could lead to further increases in reserves and paid
    claims, which could further negatively impact our financial
    performance.
    We experienced a significant increase in reported defaults
    and paid claims during 2008. If the pace of declining home
    prices and ongoing credit problems in the mortgage marketplace
    continues or remains unsettled, we anticipate an increased
    number of defaults and paid claims, which would have a negative
    impact on our results of operations.
 21




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##### Table of Contents



Due to the fact that we are in run-off and cannot replace our
    existing business, an extended period of low mortgage interest
    rates and relaxed credit terms for our existing borrowers could
    lead to increased refinance activity that could have a negative
    impact on persistency, which would lead ultimately to reduced
    premiums.
    Risks
    Related to Products
  A large portion of our insurance in force consists of loans
    with high
    loan-to-value
    ratios, which could result in a greater number of defaults and
    larger claims than loans with lower
    loan-to-value
    ratios during periods of declining home prices.
   22




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##### Table of Contents



Risks
    Related to Operations
  Because we generally cannot cancel mortgage insurance
    policies or adjust renewal premiums due to changing economic
    conditions, unanticipated defaults and claims could cause our
    financial performance to suffer significantly.
    Our loss
    experience is likely to increase as our policies continue to
    age.
    Insurance written under our delegated underwriting program
    may subject our mortgage insurance business to unanticipated
    claims.
    If we failed to properly underwrite mortgage loans when we
    provided contract underwriting services, we may be required to
    provide monetary and other remedies to the customer.
   23




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##### Table of Contents



If many of our lender partners for which we have entered into
    risk-sharing agreements, such as captive reinsurance treaties,
    continue under financial stress for an extended period of time,
    then the ability of these lenders to meet their financial
    obligations under the captive reinsurance treaties may be
    limited to the trust balances maintained within the reinsurance
    structures, which could have an adverse impact on our future
    results of operations.
    We have not recorded any of the benefits or liabilities of
    the $95 million Excess of Loss reinsurance treaty in our
    GAAP financial statements. If we are unsuccessful in our
    arbitration hearings with the reinsurer, this could have a
    significant adverse impact on our ability to complete a
    successful run-off.
  Excess-of-Loss risk-to-capital
  Loan servicers have recently experienced a significant
    increase in their workload due to the rapid growth in defaults
    and foreclosures. If the loan servicer fails to act proactively
    with delinquent borrowers in an effort to avoid foreclosure,
    then the number of delinquent loans eventually going to claim
    status could increase.
    Triad is operating in run-off under a Corrective Order from
    the Division and the outlook for the entire mortgage insurance
    industry remains uncertain. Maintaining experienced staff is
    critical to achieving a successful run-off.
   24




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##### Table of Contents



Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties      back-up
  Item 3.
    Legal
    Proceedings        Item 4.
    Submission
    of Matters to a Vote of Security Holders   25




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##### Table of Contents



PART II  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  Market
    information
  ®
  2008


2007High


Low


High


LowFirst Quarter

$
10.19


$
4.10


$
58.62


$
39.31Second Quarter

$
5.43


$
0.73


$
47.35


$
38.45Third Quarter

$
4.49


$
0.35


$
41.05


$
14.84Fourth Quarter

$
2.00


$
0.28


$
20.63


$
5.50   Holders
    Dividends
    Issuer
    purchases of equity securities and unregistered sales of equity
    securities
   26




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##### Table of Contents



Item 6.
    Selected
    Financial Data    Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations      Overview
  Form 10-K, and/or
  loan-by-loan
 27




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##### Table of Contents




    earned renewal premiums from the remaining insurance in force,
    net of:  
    reinsurance premiums ceded, primarily for captive
    reinsurance, and
    refunds paid or accrued resulting from the cancellation of
    insurance in force or for coverage rescinded due to violations
    of certain provisions of a master policy; and  
    investment income.      
    paid claims;
    changes in reserves for estimated future claim payments on loans
    that are currently in default;
    general and administrative costs of servicing existing policies;
    other general business expenses; and
    interest expense on long-term debt.    
    the conditions of the housing, mortgage and capital markets that
    have a direct impact on default rates, mitigation efforts, cure
    rates and ultimately the amount of claims paid;
    the overall general state of the economy and job market;
    persistency levels on our remaining insurance in force;
    operating efficiencies; and
    the level of investment yield, including realized gains and
    losses, on our investment portfolio.      Recent
    Events Affecting our Business
   28




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##### Table of Contents




    Required TGIC to submit a corrective plan to the Division;
    Prohibited all stockholder dividends from TGIC to its parent
    company without the prior approval of the Division;
    Prohibited interest and principal payments on TGICs
    surplus note to its parent company without the prior approval of
    the Division;
    Restricted TGIC from making any payments or entering into any
    transaction that involves the transfer of assets to, or
    liabilities from, any affiliated parties without the prior
    approval of the Division;
    Required TGIC to obtain prior written approval from the Division
    before entering into certain transactions with unaffiliated
    parties;
    Required TGIC to meet with the Division in person or via
    teleconference as necessary; and
    Required TGIC to furnish to the Division certain reports,
    agreements, actuarial opinions and information on an ongoing
    basis at specified times.  Form 10-K.
      Form 10-K
 29




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##### Table of Contents



10-year
       30




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##### Table of Contents



Form 10-K,
  Consolidated
    Results of Operations
    Year EndedDecember 31,2008


2007


% Change(Dollars in thousands, except per share data)Earned premiums

$
257,423


$
278,900



(8
)Net losses and loss adjustment expenses


923,301



372,939



148Net loss


(631,127
)


(77,458
)


715Diluted loss per share

$
(42.27
)

$
(5.22
)


710    31




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##### Table of Contents




    Loans on properties in California, Florida, Arizona and Nevada
    (which we refer to collectively as distressed
    markets). Defaults in these distressed markets comprised
    49% of our default inventory and 60% of our gross risk in
    default at December 31, 2008, compared to 33% and 48%,
    respectively, at December 31, 2007;
    The adverse development of our 2006 and 2007 books of business,
    which, on average, have significantly higher default rates than
    our other books of business and also have a higher average risk
    per policy than our other books of business;
    Our Primary bulk business written in 2006 and 2007, which has
    shown a significant amount of early payment defaults and has a
    significant amount of high LTV loans; and
    Our 2006 and 2007 Modified Pool business, which also has
    exhibited a significant amount of early payment defaults.          Production
   32




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##### Table of Contents



Year Ended December 31,2008


2007


% Change(Dollars in millions)Primary insurance written:Flow

$
3,529


$
15,861



(78
)Structured bulk






3,723



(100
)Total Primary insurance written

$
3,529


$
19,584



(82
)Modified Pool insurance written






3,331



(100
)Total insurance written

$
3,529


$
22,915



(85
)   Insurance
    and Risk in Force
    December 31,2008


2007


% Change(Dollars in millions)Primary insurance:Flow primary insurance

$
39,370


$
41,840



(6
)Structured bulk insurance


3,902



4,525



(14
)Total Primary insurance


43,272



46,365



(7
)Modified Pool insurance


19,312



21,863



(12
)Total insurance

$
62,584


$
68,228



(8
)         
    The percentage of business defined as non-prime credit quality;
    The percentage of Alt-A business;
    The percentage of business with a loan-to-value (LTV) greater
    than 95%;
    The percentage of interest only loans and adjustable rate
    mortgages (ARMs), particularly ARMs with potential negative
    amortization;
    The percentage of condominium property types;
    The percentage of non-primary residence occupancy status;
    The percentage of loans in excess of $250,000;
    The concentration of risk in distressed market states; and
    The presence of multiple risk factors on a single insured loan. 33




---



##### Table of Contents



Risk in
    Force(1)
  Primary


Modified PoolDecember, 31


December, 312008


2007


2008


2007(Dollars in millions)Gross Risk in Force

$
11,259


$
12,136


$
5,614


$
6,398Credit Quality:Prime


76.3
%


74.4
%


28.0
%


27.9
%Alt-A


20.3



21.9



71.2



71.3A-Minus


3.0



3.2



0.7



0.7Sub Prime


0.4



0.5



0.1



0.1Total


100.0
%


100.0
%


100.0
%


100.0
%LTV:Greater than 95%


24.8
%


25.7
%



%



%90.01% to 95.00%


32.7



32.5



0.2



0.390.00% and below


42.5



41.8



99.8



99.7Total


100.0
%


100.0
%


100.0
%


100.0
%Loan Type:Fixed


66.9
%


64.7
%


26.5
%


26.2
%Interest Only


10.2



10.7



23.1



23.3ARM (amortizing) fixed period 5 years or greater


8.5



9.4



30.9



31.4ARM (amortizing) fixed period less than 5 years


2.1



2.4



5.6



6.1ARM (potential negative amortization)


12.3



12.8



13.9



13.0Total


100.0
%


100.0
%


100.0
%


100.0
%Property Type:Condominium


10.7
%


10.4
%


9.6
%


9.4
%Other (principally single-family detached)


89.3



89.6



90.4



90.6Total


100.0
%


100.0
%


100.0
%


100.0
%Occupancy Status:Primary residence


87.8
%


87.7
%


73.3
%


73.5
%Secondary home


7.9



7.9



6.1



6.2Non-owner occupied


4.3



4.4



20.6



20.3Total


100.0
%


100.0
%


100.0
%


100.0
%Mortgage Amount:$0  $50,000


0.8
%


0.9
%


0.5
%


0.5
%$51,000  $100,000


9.3



9.7



5.3



5.4$100,001  $250,000


51.9



52.0



45.3



45.6$250,001  $500,000


32.2



31.5



42.1



42.1Over $500,000


5.8



5.9



6.8



6.4Total


100.0
%


100.0
%


100.0
%


100.0
%Market Status:Distressed market states (AZ, CA, FL, NV)


27.1
%


27.0
%


48.9
%


47.9
%Non-distressed market states


72.9



73.0



51.1



52.1Total


100.0
%


100.0
%


100.0
%


100.0
%     (1)
    
    Percentages represent distribution of gross risk in force on a
    per policy basis and does not account for risk ceded to captive
    reinsurers or applicable stop-loss amounts and deductibles on
    Modified Pool structured bulk transactions. 34




---



##### Table of Contents



December 31, 2008


December 31, 2007Primary


Modified Pool


Primary


Modified PoolGross





Gross





Gross





GrossRisk in





Risk in





Risk in





Risk inForce *


Percent


Force *


Percent


Force *


Percent


Force *


Percent(Dollars in millions)2002 and before

$
539.1



4.8
%

$
34.4



0.6
%

$
667.5



5.5
%

$
332.7



5.2
%2003


958.3



8.5



214.7



3.8



1,165.1



9.6



895.7



14.02004


938.3



8.3



552.0



9.8



1,116.5



9.2



1,042.9



16.32005


1,405.6



12.5



1,899.0



33.8



1,638.4



13.5



1,913.0



29.92006


2,386.0



21.2



2,111.6



37.7



2,718.5



22.4



1,977.0



30.92007


4,376.5



38.9



802.6



14.3



4,830.1



39.8



236.7



3.72008


654.7



5.8























Total

$
11,258.5



100.0
%

$
5,614.3



100.0
%

$
12,136.0



100.0
%

$
6,398.0



100.0
%     *
    
    Gross risk in force is on a per policy basis and does not
    account for risk ceded to captive reinsurers or applicable
    stop-loss amounts and deductibles on Modified Pool structured
    bulk transactions.   35




---



##### Table of Contents



Revenues
    Year Ended December 31,2008


2007


% Change(Dollars in thousands)Direct premium written

$
316,310


$
339,007



(7
)Ceded premium written


(60,777
)


(55,784
)


9Net premium written


255,533



283,223



(10
)Change in unearned premiums


1,890



(4,323
)


(144
)Earned premiums

$
257,423


$
278,900



(8
)Net investment income

$
39,580


$
32,936



20Net realized investment losses

$
(26,559
)

$
(3,049
)


771Total revenues

$
270,452


$
308,795



(12
)        36




---



##### Table of Contents



Losses
    and Expenses
    Year Ended December 31,2008


2007


% Change(Dollars in thousands)Net losses and loss adjustment expenses:Net paid claims

$
237,080


$
100,612



136Change in reserves


665,549



264,576



152Loss adjustment expenses


20,672



7,751



167Total


923,301



372,939



148Policy acquisition costs


39,416



18,497



113Other operating expenses (net of acquisition costs deferred)


58,709



43,628



35Loss ratio


358.7
%


133.7
%


168Expense ratio


24.8
%


21.9
%


13Combined ratio


383.5
%


155.6
%


146       Year Ended December 31,2008


2007


% Change(Dollars in thousands)Paid claims:Primary insurance

$
190,836


$
83,204



129Modified Pool insurance


46,742



17,408



169Total

$
237,578


$
100,612



136Number of claims paid:Primary insurance


3,662



2,341



56Modified Pool insurance


758



398



90Total


4,420



2,739



61    37




---



##### Table of Contents



December 31, 2008


December 31, 2007Primary


Modified Pool


Primary


Modified PoolAverage


Average


Average


Average


Average


Average


Average


AverageVintage Year

Loan Size


Insured Risk


Loan Size


Insured Risk


Loan Size


Insured Risk


Loan Size


Insured Risk2002 and Prior

$
104,480


$
26,805


$
77,370


$
25,043


$
106,003


$
26,809


$
80,387


$
26,1052003


115,646



27,989



141,496



41,875



119,668



28,709



145,348



42,8562004


130,819



34,939



146,972



43,596



132,591



35,042



150,444



44,6102005


156,011



40,983



177,143



57,679



156,975



40,821



178,946



58,1982006


207,918



53,710



263,356



69,310



207,324



53,534



259,678



69,2862007


207,159



55,755



272,745



79,194



208,429



56,509



270,932



79,1632008


204,341



46,952























Overall Average

$
171,463


$
44,612


$
208,361


$
60,572


$
169,340


$
44,324


$
208,004


$
60,875         Cumulative Paid Loss Ratios as ofDecember 31,Book Year

2008


20071996


14.6
%


14.5
%1997


10.4



10.21998


6.9



6.81999


9.9



9.92000


35.7



35.42001


32.3



31.02002


33.2



31.92003


20.3



16.72004


26.4



17.52005


47.3



21.62006


45.9



11.72007


19.9



0.12008






  38




---



##### Table of Contents



December 31,


December 31,2008


2007(Dollars in thousands)Primary insurance:Reserves for reported defaults

$
691,438


$
251,316Reserves for defaults incurred but not reported


108,825



40,691Total Primary insurance


800,263



292,007Modified Pool insurance:Reserves for reported defaults


347,546



54,876Reserves for defaults incurred but not reported


22,494



8,340Total Modified Pool insurance


370,040



63,216Reserve for loss adjustment expenses


17,537



4,716Total reserves for losses and loss adjustment expenses

$
1,187,840


$
359,939       Year EndedDecember 31,2008


2007


% Change(Dollars in thousands)Increase in reserve for losses and loss adjustment expenses

$
827,901


$
275,587



200Increase in reinsurance recoverable


(149,531
)


(7,305
)


1,947Net increase in reserve for losses and loss adjustment expenses


678,370



268,282



153      39




---



##### Table of Contents



December 31,


December 31,2008


2007(Dollars in thousands)% of Gross Risk In Force:California


14.6
%


15.1
%Florida


11.6
%


12.1
%Arizona


5.2
%


5.5
%Nevada


3.0
%


3.1
%Total Distressed Market States


34.4
%


35.8
%% of Gross Risk in Default:California


25.1
%


19.1
%Florida


23.1
%


20.0
%Arizona


7.2
%


5.6
%Nevada


5.0
%


3.9
%Total Distressed Market States


60.4
%


48.6
%% of Gross Reserves:California


24.4
%


18.3
%Florida


23.5
%


20.0
%Arizona


7.4
%


5.4
%Nevada


5.0
%


3.9
%Total Distressed Market States


60.3
%


47.6
%    40




---



##### Table of Contents



December 31,

December 31,2008

2007(Dollars in thousands)Risk on loans in default

$
2,729,313


$
1,000,384Gross Case Reserves as a percentage of risk in default(1)


42.0
%


36.6
%     (1)
    
    Reflects gross case reserves, which excludes IBNR and ceded
    reserves and the benefit from Modified Pool structures, as a
    percent of risk in default for total Primary delinquent loans
    and total Modified Pool delinquent loans.    December 31,


December 31,2008


2007(Dollars in thousands)Total business:Number of insured loans in force


345,055



378,907With deductibles


52,414



59,592Without deductibles


292,641



319,315Number of loans in default


40,286



16,821With deductibles


9,058



4,072Without deductibles


31,228



12,749Percentage of loans in default (default rate)


11.68
%


4.44
%Percentage of loans in default excluding deductibles


10.67
%


3.99
%Primary insurance:Number of insured loans in force


252,368



273,798Number of loans in default


24,241



10,419Percentage of loans in default


9.61
%


3.81
%Modified Pool insurance:Number of insured loans in force


92,687



105,109With deductibles


52,393



59,569Without deductibles


40,294



45,540Number of loans in default


16,045



6,402With deductibles


9,058



4,072Without deductibles


6,987



2,330Percentage of loans in default


17.31
%


6.09
%Percentage of loans in default excluding deductibles


17.34
%


5.12
%    41




---



##### Table of Contents



Expenses
    and Taxes
          Significant
    Customers
   42




---



##### Table of Contents



Financial
    Position
      Deferred
    Policy Acquisition Costs
    Prepaid
    Federal Income Taxes and Deferred Income Taxes
       43




---



##### Table of Contents



Investment
    Portfolio
  Portfolio
    Description
        December 31, 2008


December 31, 2007Amount


Percent


Amount


Percent(Dollars in thousands)Fixed maturity securities:U. S. government obligations

$
20,168



2.3
%

$
11,762



1.5
%State and municipal bonds


159,394



17.8
%


673,264



85.8
%Corporate bonds


547,945



61.2
%


40,605



5.2
%Mortgage-backed bonds


126,679



14.1
%






0.0
%Total fixed maturities


854,186



95.4
%


725,631



92.5
%Equity securities


583



0.1
%


2,162



0.3
%Total available-for-sale securities


854,769



95.5
%


727,793



92.8
%Short-term investments


40,653



4.5
%


56,746



7.2
%$
895,422



100.0
%

$
784,539



100.0
%     Year EndedDecember 31,2008


2007(Dollars in thousands)Average investments at cost or amortized cost

$
828,142


$
682,006Pre-tax net investment income

$
39,580


$
32,936Book yield


4.6
%


4.6
%Pre-tax realized investment (losses) gains

$
(26,559
)

$
(3,049
)  44




---



##### Table of Contents



Unrealized
    Gains and Losses
    Cost or


Gross


GrossAmortized


Unrealized


Unrealized


FairCost


Gains


Losses


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

$
19,665


$
503


$



$
20,168State and municipal bonds


156,675



2,719







159,394Corporate bonds


545,230



2,715







547,945Mortgage-backed bonds


123,394



3,285







126,679Subtotal, fixed maturities


844,964



9,222







854,186Equity securities


566



17







583Short term investments


40,565



88







40,653Total securities

$
886,095


$
9,327


$



$
895,422      45




---



##### Table of Contents



Credit
    Risk
    December 31, 2008


December 31, 2007Amount


Percent


Amount


Percent(Dollars in thousands)Fixed Maturities:U.S. treasury and agency bonds

$
20,168



2.4
%

$
11,762



1.6
%AAA


236,975



27.7



518,769



71.5AA


183,916



21.5



150,820



20.8A


381,936



44.7



25,774



3.6BBB


25,203



3.0



8,738



1.2BB


1,239



0.1



1,072



0.1B


619



0.1







CCC


1,523



0.2



5,591



0.8CC and lower


48



0.0



2



0.0Not rated


2,559



0.3



3,103



0.4Total fixed maturities

$
854,186



100.0
%

$
725,631



100.0
%Equity Securities:Preferred stocks:AA

$




0.0
%

$
745



34.5
%A


429



73.6



883



40.8BBB


133



22.8



534



24.7C


21



3.6







Total equity securities

$
583



100.0
%

$
2,162



100.0
%    46




---



##### Table of Contents



Credit QualityWith Benefitof Credit


Credit Quality Without BenefitEnhancements


of Credit EnhancementsAmount


Percent


Amount


Percent(Dollars in thousands)U.S. treasury and agency bonds

$
20,168



2.4
%

$
20,168



2.4
%AAA


211,944



24.8



208,926



24.5AA


127,238



14.9



102,353



12.0A


441,621



51.7



472,102



55.3BBB


47,167



5.5



29,486



3.5B


619



0.1



2,050



0.2CCC


2,822



0.3



2,067



0.2CC and below


48



0.0



48



0.0Not rated


2,559



0.3



16,986



2.0Total Fixed Maturities

$
854,186



100.0
%

$
854,186



100.0
%       Credit Enhanced State andMunicipal PortfolioAmount


Percent(Dollars in thousands)Financial GuarantorsMBIA

$
63,099



47.8
%AMBAC


34,858



26.4FSA


21,474



16.3Others (five companies)


12,491



9.5Total

$
131,922



100.0
%      47




---



##### Table of Contents



Realized
    Losses and Impairments
    Liquidity
    and Capital Resources
           48




---



##### Table of Contents



49




---



##### Table of Contents



case-by-case
  risk-to-capital
    December 31,


December 31,2008


2007(Dollars in millions)Statutory policyholders surplus

$
88.0


$
197.7Statutory contingency reserve






387.4Total

$
88.0


$
585.1    50




---



##### Table of Contents



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








More ThanContractual Obligations:

Total


1 Year


1-3 Years


3-5 Years


5 Years(Dollars in thousands)Long-term debt

$
35,000


$



$



$



$
35,000Operating leases


6,053



1,654



4,399







Loss reserves


1,187,840



407,687



780,153







Total

$
1,228,893


$
409,341


$
784,552


$



$
35,000    51




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
    Reserve
    for Losses and Loss Adjustment Expenses
    (LAE)
       52




---



##### Table of Contents



Sensitivity AnalysisEffect on Pretax Loss fromChanges in AssumptionsDecrease in Factors


Increase in FactorsResulting in a


Resulting in an(Decrease) in Pretax


Increase in PretaxLoss


Loss(Dollars in thousands)30% Increase (Decrease) in the Frequency FactorsUtilized in the Loss Reserve Model


(279,923
)


278,18415% Increase (Decrease) in the Severity FactorsUtilized in the Loss Reserve Model


(159,257
)


154,980Both a 30% Increase (Decrease) in the FrequencyFactor and a 15% Increase (Decrease) in the SeverityFactor Utilized in the Loss Reserve Model


(397,192
)


461,212          53




---



##### Table of Contents



Investments
      Premium
    Deficiency
     54




---



##### Table of Contents



Safe
    Harbor Statement under the Private Securities Litigation Reform
    Act of 1995
    
    a deeper or more prolonged recession in the United States
    coupled with the tightening of the mortgage credit markets could
    increase defaults and limit opportunities for borrowers to cure
    defaults or for Triad to mitigate losses, which could have an
    adverse material impact on our business or results of operations;
    our ability to demonstrate to the satisfaction of the Illinois
    Division of Insurance that our revised financial and operating
    plan will likely produce a solvent run-off under refined
    assumptions, which requires, among other things, that we
    maintain an appropriate level of policyholders surplus
    under statutory accounting principles;
    the possibility that the Division may take various actions
    regarding Triad if it does not approve our revised financial and
    operating plan, including placing Triad into receivership
    proceedings, which would effectively eliminate all remaining
    stockholder value;
    our ability to continue as a going concern;
    the ability of the parent company to pay the debt service with
    funds obtained from Triad, whether in the form of dividends,
    payments on the surplus note or otherwise, will require the
    approval of the Division, and it is unlikely that such approval
    will be sought or, if sought, will be obtained in the
    foreseeable future;
    whether we ultimately prevail in arbitration with the
    Excess-of-Loss reinsurance treaty, which will have an impact on
    our financial performance in run-off;
    if house prices continue to fall, additional borrowers may
    default and claims could be higher than anticipated;
    if unemployment rates continue to rise, especially in those
    areas that have already experienced significant declines in
    house prices, defaults and claims could be higher than
    anticipated;
    further economic downturns in regions where we have larger
    concentrations of risk and in markets already distressed could
    have a particularly adverse effect on our financial condition
    and loss development;
    the appointment of FHFA as the conservator of both Fannie Mae
    and Freddie Mac has resulted in changes in the business
    practices of the GSEs;
    the impact of recently adopted programs affecting modifications
    and refinancings of mortgages could materially impact our
    financial performance in run-off;
    our financial condition and performance in run-off could be
    affected by recently adopted legislation, such as EESA and HASP;
    our financial condition and performance in run-off could be
    affected by legislation adopted in the future, if any, impacting
    the mortgage industry, the GSEs specifically, or the financial
    services industry in general;
    if the GSEs or our lender customers choose to cancel the
    insurance on policies that we insure, our financial performance
    in run-off could be adversely affected;
    a significant decline in interest rates coupled with an increase
    in available credit could increase refinancings and decrease the
    persistency of renewal premiums and the quality of our insurance
    in force;
    if we have failed to properly underwrite mortgage loans under
    contract underwriting service agreements, we may be required to
    assume the costs of repurchasing those loans or face other
    remedies;
    any impediment to our ability to rescind coverage on insurance
    policies, which would be detrimental to our success in run-off; 55




---



##### Table of Contents




    our ability to lower operating expenses to the most efficient
    level while still providing the ability to mitigate losses
    effectively during run-off, which will directly impact our
    financial performance in run-off; and
    if we are unable to satisfy its continued listing requirements,
    we may be delisted from The NASDAQ Stock Market.    Item 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk    Item 8.
    Financial
    Statements and Supplementary Data    Item 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    Item 9A(T).
    Controls
    and Procedures  Conclusions
    Regarding the Effectiveness of Disclosure Controls and
    Procedures
  Rules 13a-15(e) 15d-15(e)
  Form 10-K
  Changes
    in Internal Control over Financial Reporting
    Managements
    Annual Report on Internal Control over Financial
    Reporting
  Rules 13a-15(f) 15d-15(f)
 56




---



##### Table of Contents



Item 9B.
    Other
    Information  Form 10-K.
 PART III  Item 10.
    Directors,
    Executive Officers and Corporate Governance    Robert T. David

Age  70

Director since  1993     H. Lee Durham, Jr.

Age  60

Director since  2006  57




---



##### Table of Contents



Deane W. Hall

Age  59

Director since  2009     William T. Ratliff, III

Age  55

Director since  1993     David W. Whitehurst

Age  59

Director since  1993     SECTION 16(a)
    BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
    Code
    of Ethics
  http://www.triadguaranty.com.
  Form 8-K
 58




---



##### Table of Contents



Audit
    Committee
    Rule 10A-3(b)(1)
  Item 11.
    Executive
    Compensation           59




---



##### Table of Contents




    To retain key executives with the talent and the knowledge of
    the Company and industry to drive success;
    To motivate, and provide an incentive for, executives to achieve
    financial performance and other quantitative and qualitative
    targets associated with satisfaction of all legitimate
    policyholder claims and ultimate solvency of the Company;
    To reward exceptional performance; and
    To provide a level of financial security to key executives to
    allow them to focus on executing the corrective plan in a
    difficult corporate environment.    Base Salary:
  Annual Performance-Based Cash Incentive
    Award:
  Long-Term Retention Opportunity:
  Long-Term
    Cash Award
   60




---



##### Table of Contents



Long-Term
    Equity Award
      Severance:
 61




---



##### Table of Contents



SUMMARY
    COMPENSATION TABLE
    All OtherSalary

Bonus

Stock Awards(1)

Option Awards (1)

Compensation

TotalName and Principal Position

Year

($)

($)

($)

($)

($)

($)Current Named Executive OfficersKenneth W. Jones,


2008



222,890



200,000
(2)


113,055



14,969



6,759
(10)


557,673President and Chief Executive Officer (October 22, 2008 to
    December 31, 2008), Senior Vice President and Chief
    Financial Officer (January 1, 2008 to October 22, 2008)


2007



192,500







71,881



12,193



10,070



286,644William T. Ratliff, III,


2008



232,178







123,565
(7)






84,376
(7)


440,119President and Chief Executive Officer (July 19, 2008 to
    October 22, 2008), Executive Officer (October 22, 2008
    to December 31, 2008)


2007




(8)






264,818







112,500



377,318Earl F. Wall,


2008



175,000



150,000
(2)


84,297



12,474



9,993
(11)


431,764Senior Vice President, Secretary, and General Counsel of the
    Company and Triad


2007



175,000







96,875



10,166



9,316



291,357Steven J. Haferman,


2008



198,400



100,000
(2)


96,496



16,076



9,054
(12)


420,026Senior Vice President, Risk Management and Information Technology


2007



198,400







66,458



13,098



6,620



284,576Former Executive OfficersMark K. Tonnessen,


2008



315,245



450,000
(2)


797,206
(3)


982,040
(3)


249,662
(4)


2,794,153President and Chief Executive Officer 
    (January 1, 2008 to July 18, 2008)


2007



495,000







642,617



1,008,731



35,370



2,181,718Bruce Van Fleet,


2008



135,417



180,000
(2)


165,510
(3)


377,986
(3)


206,581
(5)


1,065,494Executive Vice President, Sales and Marketing 
    (January 1, 2008 to July 15, 2008)


2007



192,308











105,945



10,623



308,876Gregory J. McKenzie(9),


2008



125,022



125,022
(13)


235,564



179,503
(3)


761,925
(6)


1,427,036President and Chief Executive Officer of Triad Guaranty
    Insurance Corporation Canada (January 1, 2008 to
    June 30, 2008)


2007



226,202



123,383







69,980



67,898



487,463     (1)
    
    Reflects the dollar amount of awards recognized for financial
    statement reporting purposes for the year ended
    December 31, 2008 in accordance with Financial Accounting
    Standards Board Statement No. 123(R)
    (FAS 123(R)), disregarding the estimate of
    forfeitures related to service-based vesting conditions. During
    2008, there were no actual forfeitures by any of our named
    executive officers. Grants were made in 2008 and prior to 2007,
    except for the grant to Mr. McKenzie, which was made
    pursuant to the terms of his offer of employment in 2007. Grants
    in the form of shares of restricted stock were valued at the
    market price of our common stock on the date of grant. Grants in
    the form of options were ten (10) year stock options
    exercisable at the market price on the date of grant. We
    utilized a Black-Scholes pricing model (or in certain cases, a
    derivative of such a model) and applied a discount for
    non-transferability of options and deferred vesting to determine
    the number of at the market options. See
    Note 11 of the Notes to Consolidated Financial Statements
    in our Annual Report on
    Form 10-K
    for the year ended December 31, 2008.(2)
    
    Amount reflects retention bonuses granted under terms of the
    2008 Executive Retention Program in recognition of the need to
    retain these and other individuals through projected periods of
    uncertainty resulting 62




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##### Table of Contents



from the capital raise process or regulatory actions if the
    capital raise was unsuccessful. These amounts were originally to
    be paid in July 2008 and January 2009 if the executive officer
    was still employed by us; however, the full amounts were paid to
    each of Mr. Tonnesen and Mr. Van Fleet in 2008
    following their separation from the Company in accordance with
    their existing contractual arrangements with the Company.(3)
    
    The previously unvested portion of the equity awards held by
    Messrs. Tonnesen, Van Fleet and McKenzie became fully
    vested as of the date of separation from the Company per terms
    of each of these individuals separate agreements, except
    for 40,500 restricted shares issued to Mr. Tonnesen on
    February 27, 2008 that will vest in a lump sum on
    August 14, 2010.(4)
    
    This amount includes a lump sum severance payment of $225,000
    paid in August 2008 pursuant to his employment agreement in
    connection with Mr. Tonnesens retirement from the
    Company, a $8,059 matching contribution under our 401(k) plan, a
    car allowance of $8,000 ($1,000 per month for the eight months
    that he was employed) and reimbursement of financial planning
    services of $7,500, as well as payments for long term disability
    insurance and country club dues totaling $1,103.(5)
    
    This amount includes severance payments of $197,083 paid in
    monthly installments from July through December 2008 under terms
    of the 2008 Executive Retention Program, a $9,200 matching
    401(K) plan contribution, and payments for long term disability
    insurance of $298.(6)
    
    This amount includes a lump sum severance payment of $750,130
    paid in July 2008 and $11,795 representing a car allowance and
    club dues for January through June 2008, grossed up for Canadian
    tax reporting purposes in accordance with
    Mr. McKenzies original employment agreement executed
    in 2007.(7)
    
    Mr. Ratliff was compensated as a director prior to his
    appointment as interim President and Chief Executive Officer
    effective July 18, 2008. Mr. Ratliff relinquished his
    role of CEO effective October 22, 2008 but remained as an
    executive officer through year end and therefore did not qualify
    for additional compensation as a director. The additional
    compensation earned by Mr. Ratliff as the Chairman of the
    Board of Directors included both cash and equity components.
    Effective March 10, 2009, Mr. Ratliff relinquished his
    role as an executive officer and subsequently will be
    compensated only for his service as a director.(8)
    
    Mr. Ratliffs compensation for the year ended
    December 31, 2007 was limited to compensation for service
    as a director.(9)
    
    Amounts have been converted from Canadian Dollars to U.S.
    Dollars using the average monthly exchange rate for 2008 of
    0.94356.(10)
    
    Amount includes a $5,644 matching contribution under our 401(k)
    plan, $605 for life insurance, and $510 for long-term disability
    insurance.(11)
    
    Amount includes a $9,000 matching contribution under our 401(k)
    plan, $483 for life insurance and $510 for long-term disability
    insurance.(12)
    
    Amount includes a $8,186 matching contribution under our 401(k)
    plan, $358 for life insurance and $510 for long-term disability
    insurance.(13)
    
    Mr. McKenzies 2008 bonus was equal to 50% of his 2008
    annual base salary per terms of his original offer of employment
    executed in January 2007.  Discussion
    Surrounding the Summary Compensation Table
  Changes
    in the Chief Executive Officer in 2008
     63




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##### Table of Contents



Current
    Named Executive Officers and Changes in Equity
    Values
    2006-2008
  Value at Grant Date


Value at December 31, 2008Restricted


Phantom


Stock


Restricted


Phantom


Stock


Total Decline inCurrent Named




Stock


Stock


Options


Stock


Stock


Options


ValueExecutive Officers




($)


($)


($)


($)


($)


($)


($)(%)Kenneth W. Jones


2008



122,600



15,750







7,600



13,300







117,450



84.9
%2007



91,815







42,100



805











133,111



99.4
%2006



136,175











950











135,225



99.3
%William T. Ratliff, III


2008



























2007



112,481











969











111,512



99.1
%2006



283,783











2,340











281,443



99.2
%Earl F. Wall


2008



82,755



11,250







5,130



9,500







79,375



84.4
%2007



77,163







35,084



676











111,570



99.4
%2006



96,264











871











95,393



99.1
%Steven J. Haferman


2008



82,755



4,500







5,130



3,800







78,325



89.8
%2007



98,231







45,219



861











142,589



99.4
%2006



114,387











798











113,589



99.3
%  64




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##### Table of Contents



Former
    Executive Officers, Contractual Commitments, and Changes in
    Equity Value
      2006-2008
  Value at Grant Date


Value at December 31, 2008Restricted


Phantom


Stock


Restricted


Phantom


Stock


Total Decline inStock


Stock


Options


Stock


Stock


Options


ValueFormer Executive Officers




($)


($)


($)


($)


($)


($)


($)(%)Mark K. Tonnesen


2008



248,265











15,390











232,875



93.8
%2007



512,787







545,745



4,495











1,054,037



99.6
%2006



























Bruce Van Fleet


2008



165,510











10,260











155,250



93.8
%2007











483,936















483,936



100.0
%2006



























Gregory J. McKenzie


2008



235,564











13,604











221,960



94.2
%2007











249,483















249,483



100.0
%2006



























  65




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##### Table of Contents



OUTSTANDING
    EQUITY AWARDS AT 2008 YEAR END TABLE
    Stock Awards(1)Option Awards





MarketNumber of


Number of








Number of


Value ofSecurities


Securities








Shares or


Shares orUnderlying


Underlying








Units of Stock


Units ofUnexercised


Unexercised


Option


Option


That Have Not


Stock ThatOptions (#)


Options (#)


Exercise


Expiration


Vested(3)


Have NotName

Exercisable


Unexercisable(2)


Price ($)


Date


(#)


Vested ($)Current Named Executive OfficersKenneth W. Jones


1,800



900



43.35



03/08/17



57,246



21,753William T. Ratliff, III


14,825







23.24



01/25/09



1,776



67520,950







27.95



01/18/1013,750







39.00



01/24/1111,760







33.18



02/06/13Steve J. Haferman


1,933



967



43.35



03/08/17



25,711



9,770Earl F. Wall


2,947







39.49



01/25/12



40,451



15,3711,500



750



43.35



03/08/17Former Executive OfficersMark K. Tonnesen


108,225







41.12



09/14/15



40,500



15,39035,000







43.35



03/08/17Bruce Van Fleet






















Gregory J. McKenzie






















     (1)
    
    Valued based on the closing price of our common stock on
    December 31, 2008, which was $0.38.(2)
    
    All unvested option awards will vest on December 31, 2009.(3)
    
    The unvested restricted stock awards will vest as follows:
    (i) on January 1, 2009: Mr. Jones,
    706 shares, Mr. Ratliff, 1,360 shares,
    Mr. Haferman, 755 shares and Mr. Wall,
    1,357 shares; (ii) on May 16, 2009:
    Mr. Jones, 834 shares and Mr. Haferman,
    700 shares; (iii) on May 17, 2009:
    Mr. Ratliff, 416 shares; (iv) on January 1,
    2010: Mr. Jones, 706 shares, Mr. Haferman,
    756 shares and Mr. Wall, 594 shares; (v) on
    August 15, 2010: Mr. Tonnesen, 40,500 shares;
    (vi) on February 26, 2011: Mr. Jones,
    20,000 shares, Mr. Haferman, 13,500 shares and
    Mr. Wall, 13,500 shares; (vii) on January 1,
    2011: Mr. Jones, 11,550 shares, Mr. Haferman,
    3,300 shares and Mr. Wall, 8,250 shares;
    (viii) on January 1, 2012: Mr. Jones,
    11,550 shares, Mr. Haferman, 3,300 shares and
    Mr. Wall, 8,250 shares; and (ix) on
    January 1, 2013: Mr. Jones, 11,900 shares,
    Mr. Haferman, 3,400 shares and Mr. Wall,
    8,500 shares.     66




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##### Table of Contents



Form 10-K.
  2008
    DIRECTOR COMPENSATION TABLE
    Fees Earned orPaid in Cash


Stock Awards(2)


TotalName(1)

($)


($)


($)Glenn T. Austin, Jr.(3)


89,915



37,384



127,299Robert T. David


70,790



38,190



108,980H. Lee Durham


110,415



34,907



145,322Richard S. Swanson(4)


69,290



37,384



106,674David W. Whitehurst


108,402
(5)


43,281
(6)


151,683Henry G. Williamson, Jr.(7)


69,665



24,249



93,914     (1)
    
    William T. Ratliff, III, our Chairman of the Board, was not
    compensated as a director during his service as interim
    President and Chief Executive Officer from July 18, 2008
    until October 22, 2008. In addition, because
    Mr. Ratliff continued to serve as an executive officer
    through December 31, 2008 following his relinquishment of
    the positions of President and CEO, he did not qualify for
    additional compensation as a director for the period from
    October 22, 2008 to December 31, 2008. Effective
    March 10, 2009, Mr. Ratliff relinquished his role as
    an executive officer and subsequently will be compensated only
    for his service as a director. Our Summary Compensation Table
    includes Mr. Ratliffs compensation for his service as
    our Chairman of the Board and as one of our executive officers
    during 2008.(2)
    
    Reflects the dollar amount recognized for financial statement
    reporting purposes for the year ended December 31, 2008 in
    accordance with FAS 123(R), disregarding the estimate of
    forfeitures related to service-based vesting conditions. During
    2008, there were no actual forfeitures by any of our directors.
    Grants in the form of shares of restricted stock were valued at
    the market price of our common stock on the date of grant. See
    Note 11 of the Notes to Consolidated Financial Statements
    for the year ended December 31, 2008. The full grant date
    fair value of awards granted in November 2008 computed in
    accordance with FAS 123(R) for Messrs. David, Durham,
    and Whitehurst is $6,750. Mr. Ratliff was not awarded any
    stock in November 2008 as he was serving as an executive officer
    and employee and did not qualify for director compensation at
    the time of the grants. At December 31, 2008, the aggregate
    number of unvested shares of restricted stock for each director
    was as follows: for Messrs. Austin and Swanson,
    241 shares, for Messrs. David and Whitehurst,
    15,241 shares and for Mr. Durham, 15,189 shares.
    At December 31, 2008, the aggregate number of shares of
    common stock which could be acquired through the exercise of
    stock options was as follows: Mr. David, 6,880 shares
    and Mr. Whitehurst, 20,360 shares.(3)
    
    Mr. Austin did not stand for re-election at our 2008 annual
    meeting, and his term as a director thus ended on
    September 11, 2008.(4)
    
    Mr. Swanson resigned from the Board effective
    October 7, 2008.(5)
    
    Includes $9,237 paid for services as a director of Triad
    Guaranty Insurance Corporation Canada.(6)
    
    Includes $5,090 paid for services as a director of Triad
    Guaranty Insurance Corporation Canada.(7)
    
    Mr. Williamson did not stand for re-election at our 2008
    annual meeting, and his term as a director thus ended on
    September 11, 2008. 67




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##### Table of Contents



Discussion
    Surrounding Directors Compensation
  Form 10-K.
        
    In-person Board meetings: After attending five in-person Board
    meetings in any given year, each non-employee director is
    entitled to receive $5,000 for each additional in-person Board
    meeting attended for the remainder of that year.
    Telephonic Board meetings: After attending eight telephonic
    Board meetings in any given year, each non-employee director is
    entitled to receive for the remainder of that year:
    (i) $1,250 for each telephonic meeting attended that is
    less than or equal to one hour, and (ii) $2,500 for each
    telephonic meeting attended that exceeds one hour.
    Telephonic Audit Committee meetings: Each non-employee member of
    the Audit Committee is entitled to receive per year:
    (i) $1,250 for each telephonic meeting attended that is
    less than or equal to one hour, and (ii) $2,500 for each
    telephonic meeting attended that exceeds one hour.
    Telephonic Committee meetings other than Audit Committee: Each
    non-employee member of other committees is entitled to receive
    per year: (i) $750 for each telephonic meeting attended
    that is less than or equal to one hour, and (ii) $1,500 for
    each telephonic meeting attended that exceeds one hour.   68




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##### Table of Contents




    Retainer: The Chairman of the Board is entitled to receive a
    $225,000 annual cash retainer that is payable in equal quarterly
    installments. The Chairman shall also receive an annual grant of
    25,000 shares of restricted stock pursuant to the Plan and
    the related restricted stock agreement. The restricted stock
    vests 100% on the first anniversary of the grant date.
    Meetings: The Chairman will not be compensated for attending
    Board meetings, Committee meetings or telephonic meetings.       69




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##### Table of Contents



Item 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters  SECURITIES
    AUTHORIZED FOR ISSUANCE UNDER
    EQUITY COMPENSATION PLANS
    EQUITY
    COMPENSATION PLAN INFORMATION
  (a)


(b)


(c)Number of


Weighted


Number of SecuritiesSecurities to be


Average Exercise


Remaining Available forIssued upon


Price of


Future Issuance UnderExercise of


Outstanding


Equity CompensationOutstanding


Options,


Plans (ExcludingOptions, Warrants


Warrants and


Securities Reflected inPlan Category

and Rights


Rights


Column (a))Equity compensation plans approved by security holders(1)


330,721


$
43.35



611,512
(2)Equity compensation plans not approved by security holders(3)


61,190


$
37.95




(4)Total


391,911


$
38.80



611,512     (1)
    
    This information relates to our 2006 Long-Term Stock Incentive
    Plan, which was approved by our stockholders in May 2006.(2)
    
    In addition to being available for future issuance upon exercise
    of stock options, shares that remain available for future grant
    may be issued pursuant to restricted stock awards under our 2006
    Long-Term Stock Incentive Plan.(3)
    
    This information relates to our 1993 Long-Term Stock Incentive
    Plan.(4)
    
    All shares that were available for issuance under our 1993
    Long-Term Stock Incentive Plan at the time the 2006 Long-Term
    Incentive Plan was adopted were carried forward to the 2006 plan
    and became available for issuance under that plan. See
    Note 12 to the Companys Consolidated Financial
    Statements.  PRINCIPAL
    HOLDERS OF COMMON STOCK
    Amount and Nature of


Percent ofName and Address of Beneficial Owner

Beneficial Ownership(1)


Common StockCollateral Holdings, Ltd. and affiliates(2)(3)


2,572,550



16.9
%FMR LLC and affiliates (4 )


1,438,451



9.5
%Third Avenue Management LLC(5)


1,300,000



8.5
%    70




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##### Table of Contents



c/o Triad
  Amount and Nature of


Percent ofName of Beneficial Owner

Beneficial Ownership(1)


Common StockGlenn T. Austin, Jr.


4,336




*Robert T. David


39,556
(7)



*H. Lee Durham, Jr.


17,419




*Steven J. Haferman


19,799




*Kenneth W. Jones


28,918
(7)



*Gregory J. McKenzie


38,300




*William T. Ratliff, III(6)


3,237,547
(7)(8)


21.3
%Richard S. Swanson


4,476




*Mark K. Tonnes en


244,654
(7)


1.6
%Bruce Van Fleet


27,000




*Earl F. Wall


108,221




*David W. Whitehurst


55,177
(7)



*Henry G. Williamson, Jr.


1,474




*All directors and executive officers as a group (16 persons)


3,882,584
(7)


25.5
%     *
    
    Less than one percent (1%).(1)
    
    Calculated pursuant to
    Rule 13d-3(d)
    under the Securities Exchange Act of 1934. Unless otherwise
    stated below, each such person has sole voting and investment
    power with respect to all such shares. In accordance with
    Rule 13d-3(d),
    shares not outstanding which are subject to options, warrants,
    rights or conversion privileges exercisable within sixty
    (60) days of March 3, 2009 are deemed outstanding for
    the purpose of calculating the number and percentage owned by
    such person, but are not deemed outstanding for the purpose of
    calculating the percentage owned by each other person listed.(2)
    
    Collat, Inc. is the general partner of Collateral Holdings, Ltd.
    and as such may be deemed to be the beneficial owner of the
    shares of common stock owned by Collateral Holdings, Ltd.
    Mr. William T. Ratliff, III is the president and a
    director of Collat, Inc. and beneficially owns 50.2% of the
    outstanding voting capital stock of Collat, Inc. Accordingly,
    Mr. Ratliff, III may be deemed to be the beneficial
    owner of the shares of common stock owned by Collateral
    Holdings, Ltd. The business address of
    Mr. Ratliff, III, Collateral Holdings, Ltd. and
    Collat, Inc. is 1900 Crestwood Boulevard, Birmingham, Alabama
    35210. Mr. Ratliff, III. is the son of
    Mr. William T. Ratliff, Jr.(3)
    
    Number of shares reported on Schedule 13G jointly filed by
    Collateral Holdings, Ltd., Collat, Inc., Mr. Ratliff, Jr.
    and Mr. Ratliff, III with the Securities and Exchange
    Commission on February 13, 2009, reporting shared power of
    Collateral Holdings, Ltd. to vote or direct the vote of and
    dispose or direct the disposition of 2,572,550 shares;
    shared power of Collat, Inc. to vote or direct the vote of and
    dispose or direct the disposition of 2,572,550 shares; sole
    power of Mr. Ratliff, Jr. to vote or direct the vote of and
    dispose or direct the disposition of 571,037 shares and
    shared power of Mr. Ratliff, Jr. to vote or direct the vote
    of and dispose or direct the disposition of
    2,572,550 shares; and sole power of
    Mr. Ratliff, III to vote or direct the vote of and
    dispose or direct the disposition of 282,457 shares and
    shared power of Mr. Ratliff, III to vote or direct the
    vote of and dispose or direct the disposition of
    2,819,068 shares. The aggregate amount of shares
    beneficially owned by Mr. Ratliff, III includes
    2,572,550 shares held of record by Collateral Holdings,
    Ltd., 2,617 shares of record held by his wife,
    7,077 shares held of record in trusts for his minor
    children, 61,285 shares which he could acquire through the
    exercise of stock options, 74,555 shares through
    RaS I, Ltd, a family limited partnership and
    246,518 shares as one of five trustees for a
    Grandchildrens Trust.(4)
    
    Number of shares reported on Schedule 13G/A filed jointly
    by FMR LLC and Edward C. Johnson 3d with the Securities and
    Exchange Commission on February 14, 2009. According to the
    Schedule 13G/A filed by FMR LLC, Fidelity
    Management & Research Company, a wholly-owned
    subsidiary of FMR LLC and an investment adviser registered under
    Section 203 of the Investment Advisers Act of 1940, is the
    beneficial owner of the 71




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##### Table of Contents



common stock as a result of acting as investment adviser to
    various investment companies registered under Section 8 of
    the Investment Company Act of 1940 (the funds). One
    of the funds, Fidelity Low Priced Stock Fund, owns all of the
    shares reported by FMR LLC on its Schedule 13G/A. Edward C.
    Johnson 3d, Chairman of FMR LLC, and FMR LLC, through its
    control of Fidelity, and the funds each has sole power to
    dispose of the reported common stock. However, neither FMR LLC
    nor Mr. Johnson has the sole power to vote or direct the
    voting of the common stock owned directly by the funds. Such
    voting rights reside with the board of trustees of each fund.
    The business address of FMR LLC, Mr. Johnson, Fidelity
    Management & Research Company and the funds is 82
    Devonshire Street, Boston, Massachusetts 02109.(5)
    
    Number of shares reported on Schedule 13G filed by Third
    Avenue Management LLC (TAM) with the Securities and
    Exchange Commission on February 13, 2009. TAM has sole
    voting and dispositive power with respect to these shares.
    According to its Schedule 13G, Third Avenue Real Estate
    Opportunities Fund, L.P., a private fund for which TAM acts as
    investment advisor, has the right to receive dividends from, and
    the proceeds from the sale of, the common stock reported by TAM.
    The business address of Third Avenue Management LLC is 622 Third
    Avenue, 32nd Floor, New York, NY 10017.(6)
    
    Mr. Ratliff, III is president and a director of
    Collat, Inc., the general partner of Collateral Holdings, Ltd.,
    and beneficially owns 50.2% of the outstanding voting capital
    stock of Collat, Inc. Accordingly, Mr. Ratliff, III
    may be deemed to be the beneficial owner of the shares of common
    stock owned by Collateral Holdings, Ltd. The business address of
    Mr. Ratliff, III is 1900 Crestwood Boulevard,
    Birmingham, Alabama
    35210-2034.
    Mr. Ratliff, III is the son of Mr. Ratliff, Jr.
    No other director or executive officer of the Company
    beneficially owns any partnership interests in Collateral
    Holdings, Ltd.(7)
    
    Includes shares of common stock which could be acquired through
    the exercise of stock options as follows: Mr. David,
    4,080 shares; Mr. Jones, 1,800 shares;
    Mr. Ratliff, III, 46,460 shares;
    Mr. Tonnesen, 143,225 shares; Mr. Whitehurst,
    20,360 shares; all directors and executive officers as a
    group, 233,879 shares.(8)
    
    Includes 2,617 shares owned by
    Mr. Ratliff, IIIs wife; 12,390 shares held
    of record in trusts for his minor children; 74,555 shares
    held through RaS I, Ltd., a family limited partnership; and
    246,518 shares held by Mr. Ratliff, III as one of
    five trustees for the Grandchildrens Trust U/A,
    December 4, 1990.  Item 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence   72




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##### Table of Contents



Item 14.
    Principal
    Accounting Fees and Services  Audit
    Fees
    Audit-Related
    Fees
    Tax
    Fees
    All Other
    Fees
     73




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##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules         74




---



##### Table of Contents



SIGNATURES      By:
    /s/  Kenneth
    W. Jones   President and Chief Executive Officer
    th
  Signature

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

Chairman of the Board/s/  Kenneth
    W. JonesKenneth
    W. Jones

President and Chief Executive Officer 
    (Principal Executive Officer and Principal Financial Officer)/s/  Kenneth
    S. DwyerKenneth
    S. Dwyer

Vice President and Chief Accounting Officer
    (Principal Accounting Officer)/s/  Robert
    T. DavidRobert
    T. David

Director/s/  H.
    Lee Durham, Jr.H.
    Lee Durham, Jr.

Director/s/  Deane
    W. HallDeane
    W. Hall

Director/s/  David
    W. WhitehurstDavid
    W. Whitehurst

Director  75




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##### Table of Contents



ANNUAL
    REPORT ON
    FORM 10-K
  ITEM 8,
    ITEM 15(a)(1) and (2), (3), (b), and (c)
  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES
  INDEX TO
    EXHIBITS
   CONSOLIDATED
    FINANCIAL STATEMENTS
  FINANCIAL
    STATEMENT SCHEDULES
  CERTAIN
    EXHIBITS
  YEAR
    ENDED DECEMBER 31, 2008
  TRIAD
    GUARANTY INC.
  WINSTON-SALEM,
    NORTH CAROLINA
 76




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##### Table of Contents



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


78Consolidated Balance Sheets at December 31,
    2008 and 2007


79Consolidated Statements of Operations for each of
    the two years in the period ended December 31, 2008


80Consolidated Statements of Changes in
    Stockholders (Deficit) Equity for each of the two years in
    the period ended December 31, 2008


81Consolidated Statements of Cash Flows for each of
    the two years in the period ended December 31, 2008


82Notes to Consolidated Financial Statements


83Financial Statement SchedulesSchedules at and for each of the two years in the period ended
    December 31, 2008Schedule I  Summary of
    Investments  Other Than Investments in Related
    Parties


107Schedule II  Condensed Financial
    Information of Registrant


108Schedule IV  Reinsurance


114     77




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##### Table of Contents



Report of
    Independent Registered Public Accounting Firm  The Board of Directors and Stockholders of Triad Guaranty
    Inc.
              78




---



##### Table of Contents



TRIAD
    GUARANTY INC.



CONSOLIDATED
    BALANCE SHEETS  December 31,2008


2007(Dollars in thousands, except per share data)ASSETSInvested assets:Securities available-for-sale, at fair value:Fixed maturities (amortized cost: $844,964 and $710,924)

$
854,186


$
725,631Equity securities (cost: $566 and $2,520)


583



2,162Short-term investments


40,653



56,746Total invested assets


895,422



784,539Cash and cash equivalents


39,940



124,811Real estate acquired in claim settlement


713



10,860Accrued investment income


10,515



10,246Deferred policy acquisition costs






36,243Prepaid federal income taxes


15



116,008Property and equipment, at cost less accumulated depreciation
    (2008  $25,294; 2007  $23,458)


7,747



11,421Reinsurance recoverable, net


150,848



5,815Other assets


25,334



32,910Total assets

$
1,130,534


$
1,132,853LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYLiabilities:Losses and loss adjustment expenses

$
1,187,840


$
359,939Unearned premiums


15,863



17,793Amounts payable to reinsurers


719



6,525Deferred income taxes






123,297Revolving line of credit






80,000Long-term debt


34,529



34,519Accrued interest on debt


1,275



1,355Accrued expenses and other liabilities


26,974



10,574Total liabilities


1,267,200



634,002Commitments and contingencies  Notes 6 and 16Stockholders (deficit) equity:Preferred stock, par value $0.01 per share
     authorized 1,000,000 shares; no shares issued
    and outstanding






Common stock, par value $0.01 per share  authorized
    32,000,000 shares; issued and outstanding
    15,161,259 shares at December 31, 2008 and
    14,920,243 shares at December 31, 2007


151



149Additional paid-in capital


112,629



109,679Accumulated other comprehensive income, net of income tax
    liability of $3,265 and $6,475 at December 31, 2008 and
    2007, respectively


6,063



13,405Retained earnings (accumulated deficit)


(255,509
)


375,618Total stockholders (deficit) equity


(136,666
)


498,851Total liabilities and stockholders (deficit) equity

$
1,130,534


$
1,132,853    79




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##### Table of Contents



TRIAD
    GUARANTY INC.



CONSOLIDATED
    STATEMENT OF OPERATIONS  Year Ended December 31,2008


2007(Dollars in thousands, except per share data)Revenue:Premiums written:Direct

$
316,310


$
339,007Ceded


(60,777
)


(55,784
)Net premiums written


255,533



283,223Change in unearned premiums


1,890



(4,323
)Earned premiums


257,423



278,900Net investment income


39,580



32,936Net realized investment losses


(26,559
)


(3,049
)Other income


8



8270,452



308,795Losses and expenses:Net losses and loss adjustment expenses


923,301



372,939Interest expense on debt


3,557



4,375Policy acquisition costs


39,416



18,497Other operating expenses (net of acquisition costs deferred)


58,709



43,6281,024,983



439,439Loss before income tax benefit


(754,531
)


(130,644
)Income tax benefit:Current


(2,012
)


(5
)Deferred


(121,392
)


(53,181
)(123,404
)


(53,186
)Net loss

$
(631,127
)

$
(77,458
)Loss per common and common equivalent share:Basic

$
(42.27
)

$
(5.22
)Diluted

$
(42.27
)

$
(5.22
)Shares used in computing loss per common and common
    equivalent share:Basic


14,929,692



14,829,205Diluted


14,929,692



14,829,205    80




---



##### Table of Contents



TRIAD
    GUARANTY INC.



CONSOLIDATED
    STATEMENTS OF CHANGES IN STOCKHOLDERS (DEFICIT)
    EQUITY  Accumulated


RetainedAdditional


Other


EarningsCommon


Paid-In


Comprehensive


(AccumulatedStock


Capital


Income


Deficit)


Total(Dollars in thousands)Balance at January 1, 2007

$
149


$
104,981


$
12,018


$
453,076


$
570,224Net loss














(77,458
)


(77,458
)Other comprehensive
    income-net
    of taxChange in unrealized (losses) on investments










(2,691
)






(2,691
)Foreign currency translation adjustment










4,078







4,078Other comprehensive income


















1,387Comprehensive loss


















(76,071
)Share-based compensation






3,918











3,918Tax effect of exercise of non-qualified stock options and
    vesting of restricted stock






164











164Issuance of common stock under stock incentive plan






616











616Balance at December 31, 2007


149



109,679



13,405



375,618



498,851Net loss














(631,127
)


(631,127
)Other comprehensive
    income-net
    of taxChange in unrealized (losses) on investments










(3,264
)






(3,264
)Foreign currency translation adjustment










(4,078
)






(4,078
)Other comprehensive loss


















(7,342
)Comprehensive loss


















(638,469
)Share-based compensation






4,257











4,257Tax effect of exercise of non-qualified stock options and
    vesting of restricted stock






(1,305
)










(1,305
)Net issuance of restricted stock under stock incentive plan


2



(2
)










Balance at December 31, 2008

$
151


$
112,629


$
6,063


$
(255,509
)

$
(136,666
)    81




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##### Table of Contents



TRIAD
    GUARANTY INC.



CONSOLIDATED
    STATEMENTS OF CASH FLOW  Year Ended December 31,2008


2007(Dollars in thousands)Operating activitiesNet loss

$
(631,127
)

$
(77,458
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Losses, loss adjustment expenses and unearned premium reserves


825,971



280,187Accrued expenses and other liabilities


16,395



889Income taxes recoverable


(1,234
)


Reinsurance, net


(150,839
)


(4,360
)Accrued investment income


(286
)


(2,192
)Policy acquisition costs deferred


(3,173
)


(19,597
)Policy acquisition costs


39,416



18,497Net realized investment losses


26,559



3,049Provision for depreciation


4,951



2,309Accretion of discount on investments


2,737



680Deferred income taxes


(121,392
)


(53,181
)Prepaid federal income taxes


115,993



50,900Real estate acquired in claim settlement, net of write-downs


10,147



(690
)Accrued interest on debt


(80
)


80Other assets


8,878



(11,992
)Other operating activities


4,222



3,955Net cash provided by operating activities


147,138



191,076Investing activitiesSecurities available-for-sale:Purchases  fixed maturities


(839,372
)


(298,992
)Sales  fixed maturities


633,928



155,295Maturities  fixed maturities


40,473



1,715Purchases  equities






(55
)Sales  equities


287



8,338Net change in short-term investments


14,074



(51,445
)Purchases of property and equipment


(1,296
)


(6,052
)Net cash used in investing activities


(151,906
)


(191,196
)Financing activitiesFunding (repayment) of revolving credit facility


(80,000
)


80,000Excess tax benefits from share-based compensation


15



175Proceeds from exercise of stock options






616Net cash (used in) provided by financing activities


(79,985
)


80,791Foreign currency translation adjustment on cash and cash
    equivalents


(118
)


5,531Net change in cash and cash equivalents


(84,871
)


86,202Cash and cash equivalents at beginning of year


124,811



38,609Cash and cash equivalents at end of year

$
39,940


$
124,811Supplemental schedule of cash flow informationCash (received) paid during the period for:Income taxes and United States Mortgage Guaranty Tax and Loss
    Bonds

$
(122,111
)

$
(45,614
)Interest

$
3,631


$
4,286    82




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2008 1.
    Accounting
    Policies  Nature
    of Business
  and/or
  Basis
    of Presentation
    Consolidation
    Use of
    Estimates
    Investments
   83




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Fair
    Value Measurements
  Fair
    Value Measurements
    Level 1:
    Unadjusted quoted prices in active markets that are accessible
    at the measurement date for identical, unrestricted assets or
    liabilities.  Level 2:
    Quoted prices in markets that are not active, or inputs that are
    observable either directly or indirectly, for substantially the
    full term of the asset or liability.Level 3:
    Prices or valuation techniques that require inputs that are both
    significant to the fair value measurement and unobservable
    (i.e., supported with little or no market activity).    Cash
    and Cash Equivalents
    Real
    Estate Acquired in Claim Settlement
    Premium
    Deficiency Reserve and Deferred Policy Acquisition
    Costs
     84




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Property
    and Equipment
    Loss
    and Loss Adjustment Expense Reserves
        Reinsurance
   85




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Income
    Taxes
            Income
    Recognition
     86




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Significant
    Customers
    Share-Based
    Compensation
  Share-Based Payment
  Foreign
    Currency Translation
  non-U.S. dollar
  (Loss)
    Earnings
    Per Share (EPS)    Comprehensive
    (Loss) Income
   87




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007(Dollars in thousands)Unrealized losses arising during the period, before taxes

$
(31,580
)

$
(7,189
)Income tax benefit


11,053



2,516Unrealized losses arising during the period, net of taxes


(20,527
)


(4,673
)Less reclassification adjustment:Loss realized in operations


(26,559
)


(3,049
)Income tax benefit


9,296



1,067Reclassification adjustment for losses realized in operations


(17,263
)


(1,982
)Change in unrealized losses on investments


(3,264
)


(2,691
)Foreign currency translation adjustment, before taxes


(5,531
)


5,531Income tax benefit (expense)


1,453



(1,453
)(1)Foreign currency translation adjustment, after taxes


(4,078
)


4,078Other comprehensive (loss) income

$
(7,342
)

$
1,387     (1)
    
    Tax effect calculated from unrealized gain on subsidiary of
    $4,151.  Recent
    Accounting Pronouncements
  EITF 99-20-1, Amendments to the Impairment Guidance in EITF Issue
    No. 99-20 (EITF 99-20-1), No. 99-20, Recognition of Interest Income and Impairment on Purchased
    Beneficial Interests and Beneficial Interests That Continue to
    Be Held by a Transferor in Securitized Financial Assets (EITF 99-20) FSP 99-20-1 Accounting for Certain
    Investments in Debt and Equity Securities FSP 99-20-1 FSP 99-20-1
  No. FAS 157-2, (FSP 157-2). FSP 157-2 FSP 157-2.
  
    Nonfinancial assets and nonfinancial liabilities initially
    measured at fair value in a business combination or other new
    basis event, but not measured at fair value in subsequent
    periods;
    Reporting units measured at fair value in the goodwill
    impairment test under SFAS No. 142, Goodwill and
    Other Intangible Assets(SFAS 142), and
    indefinite-lived intangible assets measured at fair value for
    impairment assessment under SFAS 142; 88




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    Nonfinancial long-lived assets measured at fair value for an
    impairment assessment under SFAS No. 144,
    Accounting for the Impairment or Disposal of Long-Lived
    Assets;
    Asset retirement obligations initially measured at fair value
    under SFAS No. 143, Accounting for Asset Retirement
    Obligations; and
    Nonfinancial liabilities for exit or disposal activities
    initially measured at fair value under SFAS No. 146,
    Accounting for Costs Associated with Exit or Disposal
    Activities.  FAS 157-3, Determining the Fair Value of a Financial Asset When the
    Market for That Asset is Not Active (FSP 157-3). FSP 157-3 FSP 157-3 FSP 157-3 FSP 157-3 Accounting Changes
    and Error Corrections FSP 157-3
  FAS No. 142-3, Determination of the Useful Life of Intangible Assets (FSP 142-3), FSP 142-3 FSP 142-3 and/or FSP 142-3 FSP 142-3 FSP 142-3 FSP 142-3
  The
    Hierarchy of Generally Accepted Accounting Principles The Meaning of
    Present Fairly in Conformity With Generally Accepted Accounting
    Principles
  Noncontrolling Interests in Consolidated Financial
    Statements  an amendment of Accounting Research
    Bulletin (ARB) No. 51
 89




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##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Business
    Combinations  a replacement of FASB Statement
    No. 141
  2.
    Going
    Concern     90




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    3.
    Investments    December 31, 2008Cost or


Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


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

$
19,665


$
503


$



$
20,168State and municipal


156,675



2,719







159,394Corporate


545,230



2,715







547,945Mortgage backed


123,394



3,285







126,679Total fixed maturity securities


844,964



9,222







854,186Equity securities


566



17







583Short-term investments


40,565



88







40,653$
886,095


$
9,327


$



$
895,422   91




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  December 31, 2007Cost or


Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


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

$
11,644


$
144


$
(25
)

$
11,763State and municipal


659,178



15,552



(1,467
)


673,263Corporate


40,102



672



(169
)


40,605Total fixed maturity securities


710,924



16,368



(1,661
)


725,631Equity securities


2,520







(358
)


2,162Short-term investments


56,746











56,746$
770,190


$
16,368


$
(2,019
)

$
784,539     December 31, 2007Less Than 12 Months


12 Months or More


TotalFair


Unrealized


Fair


Unrealized


Fair


UnrealizedValue


Losses


Value


Losses


Value


Losses(Dollars in thousands)Fixed maturities:U.S. government

$
391


$
(4
)

$
2,729


$
(21
)

$
3,120


$
(25
)State and municipal


84,437



(1,243
)


23,586



(224
)


108,023



(1,467
)Corporate


20,670



(169
)










20,670



(169
)Subtotal


105,498



(1,416
)


26,315



(245
)


131,813



(1,661
)Equity securities


2,162



(358
)










2,162



(358
)Total temporarily impaired securities

$
107,660


$
(1,774
)

$
26,315


$
(245
)

$
133,975


$
(2,019
)    92




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Available-for-SaleAmortized


FairCost


Value(Dollars in thousands)Maturity:One year or less

$
141,482


$
141,754After one year through five years


513,189



517,099After five years through ten years


126,436



130,133After ten years


63,857



65,200Total

$
844,964


$
854,186     Year Ended December 31,2008


2007(Dollars in thousands)Securities available-for-sale:Fixed maturity securities:Gross realized gains

$
10,262


$
912Gross realized losses


(38,570
)


(281
)Equity securities:Gross realized gains


44



1,328Gross realized losses


(1,705
)


(56
)Foreign currency gross realized gains


3,404



50Other investment gains (losses)


6



(5,002
)Net realized losses

$
(26,559
)

$
(3,049
)       Year Ended December 31,2008


2007(Dollars in thousands)Income:Fixed maturities

$
37,549


$
29,599Preferred stocks


127



258Common stocks






57Cash, cash equivalents and short-term investments


2,973



3,93140,649



33,845Expenses


(1,069
)


(909
)Net investment income

$
39,580


$
32,936  93




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    4.
    Deferred
    Policy Acquisition Costs (DAC)      2008


2007(Dollars in thousands)Balance  beginning of period

$
36,243


$
35,143Acquisition costs deferred:Sales compensation


1,864



8,207Underwriting and issue expenses


1,309



11,3903,173



19,597Amortization of acquisition expenses


39,416



18,497Net (decrease) increase


(36,243
)


1,100Balance  end of period

$



$
36,243  94




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  5.
    Reserve
    for Losses and LAE    2008


2007(Dollars in thousands)Balance at January 1,

$
359,939


$
84,352Less: reinsurance recoverables






(1
)359,939



84,351Incurred losses and loss adjustment expenses net of reinsurance
    recoveries (principally in respect of default notices received
    in):Current year


873,568



332,210Deficiency on prior years


49,733



40,729Total incurred losses and loss adjustment expenses


923,301



372,939Loss and loss adjustment expense payments net of reinsurance
    recoveries (principally in respect of default notices received
    in):Current year


38,974



22,725Prior years


206,455



81,934Total loss and loss adjustment expense payments


245,429



104,659Net ending balance at December 31,


1,037,811



352,631Reinsurance recoverables


150,029



7,308Balance at December 31,

$
1,187,840


$
359,939      95




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Commitments    December 31, 2008(Dollars in thousands)2009

$
1,6542010


1,5512011


1,4712012


1,3772013


$
6,053     7.
    Federal
    Income Taxes    Year Ended December 31,2008


2007(Dollars in thousands)Income tax benefit computed at statutory rate

$
(263,015
)

$
(45,726
)(Decrease) increase in taxes resulting from:Tax-exempt interest


(7,353
)


(9,380
)Valuation allowance


145,335



Other


1,629



1,920Income tax benefit

$
(123,404
)

$
(53,186
)  96




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007(Dollars in thousands)Deferred tax assetsUnearned premiums

$
3,924


$
3,872Impairments on securities


11,258



Losses and loss adjustment expenses


92,431



6,346Net operating loss carryforwards and other credits


39,635



Other


2,784



2,316Total deferred tax assets


150,032



12,534Deferred tax liabilitiesContingency loss reserve deduction






112,801Deferred policy acquisition costs






12,685Unrealized investment gains


3,265



6,475Other


1,432



3,870Total deferred tax liabilities


4,697



135,831Net deferred tax asset (liability) before valuation allowance


145,335



(123,297
)Valuation allowance


(145,335
)


Net deferred tax liability

$



$
(123,297
)        97




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    UnrecognizedTax Benefits(Dollars in thousands)Balance at December 31, 2007

$
Additions based on tax positions related to the current year


Additions for tax positions of prior years


5,500Reductions for tax positions of prior years


Settlements


Balance at December 31, 2008

$
5,500       8.
    Insurance
    in Force, Dividend Restriction, and Statutory Results     98




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2008


2007(Dollars in thousands)Net risk

$
11,019,036


$
11,967,179Statutory surplus

$
88,027


$
197,713Statutory contingency reserve






387,365Total

$
88,027


$
585,078Risk-to-capital ratio


125.2 to 1



20.5 to 1     
    Required TGIC to submit a corrective plan to the Division;
    Prohibited all stockholder dividends from TGIC to its parent
    company without the prior approval of the Division;
    Prohibited interest and principal payments on TGICs
    surplus note to its parent company without the prior approval of
    the Division;
    Restricted TGIC from making any payments or entering into any
    transaction that involves the transfer of assets to, or
    liabilities from, any affiliated parties without the prior
    approval of the Division;
    Required TGIC to obtain prior written approval from the Division
    before entering into certain transactions with unaffiliated
    parties;
    Required TGIC to meet with the Division in person or via
    teleconference as necessary; and
    Required TGIC to furnish to the Division certain reports,
    agreements, actuarial opinions and information on an ongoing
    basis at specified times.  Form 10-K.
   99




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Form 10-K
  9.
    Related
    Party Transactions    10.
    Employee
    Benefit Plan    11.
    Reinsurance   100




---



##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2008


2007(Dollars in thousands)Earned premiums:Direct

$
318,199


$
334,406Assumed


1



1Ceded


(60,777
)


(55,507
)Net earned premiums

$
257,423


$
278,900Losses and loss adjustment expenses:Direct

$
1,073,328


$
380,244Assumed


1



(1
)Ceded


(150,028
)


(7,304
)Net losses and loss adjustment expenses

$
923,301


$
372,939         12.
    Long-Term
    Stock Incentive Plan   101




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##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Weighted-AverageWeighted-


Aggregate


RemainingNumber of


Average


Intrinsic


ContractualShares


Exercise Price


Value


Term(Dollars in thousands)Outstanding, January 1, 2008


645,197


$
39.60Granted






Exercised






Cancelled


253,286



40.83Outstanding, December 31, 2008


391,911



38.80


$




4.5 yearsExercisable, December 31, 2008


383,267



38.69


$




4.5 years     2008


2007Expected volatility


n/a



31.7
%Expected dividend yield


n/a



0.0
%Expected term


n/a



5.0 yearsRisk-free rate


n/a



4.5
%       Number of


Weighted-AverageShares


Grant-Date Fair ValueNonvested, January 1, 2008


99,278


$
44.19Granted


342,470



3.80Vested


203,727



18.81Cancelled


1,713



43.95Nonvested, December 31, 2008


236,308



7.54  102




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##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        13.
    Fair
    Value Measurement  Fair Value Measurements
  Fair Value Measurements at Reporting Date UsingQuoted Pricesin Active


SignificantMarkets for


Other


SignificantIdentical


Observable


UnobservableAssets


Inputs


InputsDecember 31, 2008


(Level 1)


(Level 2)


(Level 3)(Dollars in thousands)AssetsSecurities available-for-saleFixed maturities

$
854,186


$



$
851,651


$
2,535Equity securities


583



583







Real estate acquired in claim settlement


713







713



Total

$
855,482


$
583


$
852,364


$
2,535  103




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##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Fair
    Value Measurement Using Significant
    Unobservable Inputs (Level 3)
    Certain Bonds in Fixed Maturities AFS Portfolio
  Year EndedDecember 31, 2008(Dollars in thousands)Beginning balance

$
7,402Total gains and losses (realized and unrealized):Included in operations


(270
)Included in other comprehensive income


(819
)Purchases, issuances and settlements


(3,983
)Transfers in and/or out of Level 3


205Ending balance

$
2,535The amount of total gains and losses for the period included in
    operations attributable to the change in unrealized gains or
    losses relating to assets still held at the reporting date

$
(1,815
)     14.
    Long-term
    Debt    15.
    Fair
    Value of Financial Instruments    2008


2007Carrying


Fair


Carrying


FairValue


Value


Value


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

$
854,186


$
854,186


$
725,631


$
725,631Equity securities available-for-sale


583



583



2,162



2,162Financial LiabilitiesLong-term debt


34,529



10,124



34,519



21,945Credit facility










80,000



80,000    104




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##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        16.
    Exit
    Costs      17.
    Contingencies       105




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##### Table of Contents



TRIAD
    GUARANTY INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    18.
    Subsequent
    Events  and/or
   106




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##### Table of Contents



SCHEDULE I
    SUMMARY OF INVESTMENTS  OTHER THAN INVESTMENTS IN
    RELATED PARTIES
    TRIAD GUARANTY INC.
    December 31, 2008  Amount atCost or





Which ShownAmortized


Fair


in BalanceCost


Value


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

$
19,665


$
20,168


$
20,168State and municipal bonds


156,675



159,394



159,394Corporate bonds


545,230



547,945



547,945Mortgage backed


123,394



126,679



126,679Total


844,964



854,186



854,186Equity securities, available-for-sale:Preferred stock


566



583



583Short-term investments


40,565



40,653



40,653Total investments other than investments in related parties

$
886,095


$
895,422


$
895,422  107




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##### Table of Contents



SCHEDULE II 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    CONDENSED BALANCE SHEETS
    TRIAD GUARANTY INC.
    (Parent Company)  December 31,2008


2007(Dollars in thousands)ASSETSFixed maturities, available-for-sale

$
5,045


$
42,438Equity securities, available-for-sale






216Notes receivable from subsidiary


25,000



25,000Investment in subsidiaries equity






544,184Short-term investments


1,752



3,969Cash


3,963



1,999Accrued investment income


2,244



1,513Income taxes recoverable


53



129Other assets


1



367Total assets

$
38,058


$
619,815LIABILITIES AND STOCKHOLDERS (DEFICIT) EQUITYLiabilities:Revolving line of credit

$



$
80,000Long-term debt


34,529



34,520Accrued interest


1,275



1,355Deferred income taxes






4,113Investment in subsidiaries deficit


138,918



Accrued expenses and other liabilities


2



974Total liabilities


174,724



120,962Stockholders (deficit) equity:Common stock


151



149Additional paid-in capital


112,629



109,679Accumulated other comprehensive income


6,063



13,407Retained earnings (accumulated deficit)


(255,509
)


375,618Total stockholders (deficit) equity


(136,666
)


498,853Total liabilities and stockholders (deficit) equity

$
38,058


$
619,815    108




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##### Table of Contents



SCHEDULE II 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    CONDENSED STATEMENTS OF OPERATIONS
    TRIAD GUARANTY INC.
    (Parent Company)
  Year Ended December 31,2008


2007(Dollars in thousands)Revenue:Investment income:Dividends from subsidiary (Triad)

$



$
30,000Interest income


3,040



4,779Net investment income


3,040



34,779Realized investment gains (losses)


3,188



(4,231
)6,228



30,548Expenses:Interest expense


3,558



4,376Operating expenses


4,527



4,2788,085



8,654Income (loss) before federal income taxes and equity (deficit)
    in undistributed income (loss) of subsidiaries


(1,857
)


21,894Income tax expense (benefit):Current


831



Deferred


3,837



(2,296
)4,668



(2,296
)Income before equity in undistributed loss of subsidiaries


2,811



24,190Equity in undistributed loss of subsidiaries


(633,938
)


(101,648
)Net loss

$
(631,127
)

$
(77,458
)    109




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##### Table of Contents



SCHEDULE II 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    CONDENSED STATEMENTS OF CASH FLOWS
    TRIAD GUARANTY INC.
    (Parent Company)
  Year Ended December 31,2008


2007(Dollars in thousands)Operating Activities:Net loss

$
(631,127
)

$
(77,458
)Adjustments to reconcile net loss to net cash provided by
    operating activities:Equity in undistributed loss of subsidiaries


633,938



101,648Accrued investment income


(731
)


Other assets


366



(367
)Deferred income taxes


(3,837
)


(2,296
)Income taxes recoverable


76



(92
)Accretion of discount on investments


39



(16
)Amortization of deferred compensation


4,257



3,918Amortization of debt issue costs


9



10Accrued interest


(80
)


80Realized investment (gains) losses on securities


(3,188
)


4,231Other liabilities


(972
)


950Other operating activities


(37
)


17Net cash (used in) provided by operating activities


(1,287
)


30,625Investing Activities:Fixed maturities:Purchases


(5,131
)


(87,786
)Sales and maturities


41,855



75,290Cash contributed to subsidiaries:Triad






(50,000
)TGICC






(45,045
)Equity securities:Sales


44,295



Change in short-term investments


2,217



(3,756
)Net cash (used in) provided by investing activities


83,236



(111,297
)Financing Activities:Proceeds from revolving credit facility


(80,000
)


80,000Excess tax benefits related to share based payments


15



175Proceeds from exercise of stock options






616Net cash provided by (used in) financing activities


(79,985
)


80,791Increase in cash


1,964



119Cash at beginning of year


1,999



1,880Cash at end of year

$
3,963


$
1,999    110




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##### Table of Contents



SCHEDULE II 
    CONDENSED FINANCIAL INFORMATION OF REGISTRANT
    TRIAD GUARANTY INC.
    (Parent Company)
    SUPPLEMENTARY NOTES
  1.
    Basis of
    Presentation and Significant Accounting Policies  Form 10-K.
  2.
    Nature of
    Operations  and/or
  3.
    Going
    Concern       111




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##### Table of Contents



4.
    Investments    Cost or


Gross


GrossAmortized


Unrealized


Unrealized


FairAt December 31, 2008

Cost


Gains


Losses


Value(Dollars in thousands)Fixed maturity securities:Corporate

$
5,040


$
5


$



$
5,045Total


5,040



5







5,045Short-term investments


1,752











1,752Total


6,792



5







6,797   Cost or


Gross


GrossAmortized


Unrealized


Unrealized


FairAt December 31, 2007

Cost


Gains


Losses


Value(Dollars in thousands)Fixed maturity securities:Corporate

$
27,925


$



$



$
27,925Municipal


14,106



575



(168
)


14,513Total


42,031



575



(168
)


42,438Equity securities


250







(34
)


216Short-term investments


3,969











3,969Total


46,250



575



(202
)


46,623     Year Ended December 31,2008


2007(Dollars in thousands)Income:Fixed maturities

$
485


$
1,779Equity securities






18Dividends received from subsidiary (Triad)






30,000Cash and short-term investments


371



790Note receivable from subsidiary


2,225



2,2253,081



34,812Expenses


41



33Net investment income


3,040



34,779  112




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##### Table of Contents



5.
    Long-term
    Debt   113




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##### Table of Contents



SCHEDULE IV 
    REINSURANCE
    TRIAD GUARANTY INC.
    MORTGAGE INSURANCE PREMIUM EARNED
    Years Ended December 31, 2008 and 2007  Ceded To


Assumed





Percentage ofGross


Other


From Other


Net


Amount AssumedAmount


Companies


Companies


Amount


to Net(Dollars in thousands)2008

$
318,199


$
60,777


$
1


$
257,423



0.0
%2007

$
334,406


$
55,507


$
1


$
278,900



0.0
%  114




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##### Table of Contents



EXHIBIT INDEXForm 10-K
    for Fiscal Year Ended December 31, 2008  ExhibitNumber

Description of Document3
.1

Certificate of Incorporation of the Registrant, as amended
    May 23, 1997; previously filed as Exhibit 3.1 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 1997, filed
    August 12, 1997, and herein incorporated by reference.3
.2

Certificate of Amendment of Certificate of Incorporation of the
    Registrant, effective as of May 20, 1998; previously filed
    as Exhibit 3.2 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2007, filed
    April 1, 2008, and herein incorporated by reference.3
.3

Bylaws of the Registrant, as amended on March 21, 2003;
    previously filed as Exhibit 3.2 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2002, filed
    March 27, 2003, and herein incorporated by reference.3
.4

Amendment to Bylaws of the Registrant, effective
    November 20, 2008; previously filed as Exhibit 3.2 to
    the Registrants Current Report on
    Form 8-K,
    filed November 25, 2008, and herein incorporated by
    reference.4
.1

Form of common stock certificate; previously filed as
    Exhibit 4 to the Registrants Registration Statement
    on
    Form S-1,
    filed October 22, 1993, and herein incorporated by
    reference.4
.2

Indenture, dated as of January 15, 1998, between the
    Registrant and Bankers Trust Company; previously filed as
    Exhibit 4.2 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1997, filed
    March 26, 1998, and herein incorporated by reference.10
.6

Registration Agreement among the Registrant, Collateral
    Investment Corp. and Collateral Mortgage, Ltd.; previously filed
    as Exhibit 10.6 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1993, filed
    March 28, 1994, and herein incorporated by reference.10
.16

Economic Value Added Incentive Bonus Program (Senior
    Management); previously filed as Exhibit 10.16 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1996, filed
    March 27, 1997, and herein incorporated by reference.10
.21

Excess of Loss Reinsurance Agreement, effective as of
    December 31, 1999, between Triad Guaranty Insurance
    Corporation, Capital Mortgage Reinsurance Company and Federal
    Insurance Company; previously filed as Exhibit 10.21 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 1999, filed
    March 29, 2000, and herein incorporated by reference.10
.22

Excess of Loss Reinsurance Agreement, effective as of
    January 1, 2001, between Triad Guaranty Insurance
    Corporation and Ace Capital Mortgage Reinsurance Company;
    previously filed as Exhibit 10.22 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2000, filed
    March 30, 2001, and herein incorporated by reference.10
.23

Employment Agreement, dated May 1, 2002, between the
    Registrant and Earl F. Wall; previously filed as
    Exhibit 10.23 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2002, filed
    August 14, 2002, and herein incorporated by reference.*10
.26

Employment Agreement, dated June 14, 2002, between the
    Registrant and Kenneth C. Foster; previously filed as
    Exhibit 10.26 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2002, filed
    March 27, 2003, and herein incorporated by reference.*10
.27

Consulting Agreement, dated December 9, 2004, by and
    between the Registrant, Triad Guaranty Insurance Corporation,
    Triad Guaranty Assurance Company and Collateral Mortgage, Ltd.;
    previously filed as Exhibit 10.27 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2004, filed
    March 14, 2005, and herein incorporated by reference.10
.28

Agreement for Administrative Services, effective January 1,
    2005, between and among Collateral Mortgage, Ltd., Collat, Inc.,
    New South Federal Savings Bank, the Registrant and Triad
    Guaranty Insurance Corporation; previously filed as
    Exhibit 10.28 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2004, filed
    March 14, 2005, and herein incorporated by reference.10
.30

Exchange Agreement, dated as of May 18, 2005, by and among
    the Registrant, Collateral Investment Corp. and the Shareholders
    of Collateral Investment Corp. listed on the signature pages
    thereto; previously filed as Exhibit 10.30 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2005, filed
    August 8, 2005, and herein incorporated by reference. 115




---



##### Table of Contents



ExhibitNumber

Description of Document10
.32

Employment Agreement and Related Letter of Agreement, dated
    September 9, 2005, between the Registrant and Mark K.
    Tonnesen; previously filed as Exhibit 10.32 to the
    Registrants Current Report on
    Form 8-K,
    filed September 16, 2005, and herein incorporated by
    reference.*10
.33

Employment Agreement, dated January 6, 2006, by and between
    Ronnie D. Kessinger and the Registrant; previously filed as
    Exhibit 10.33 to the Registrants Current Report on
    Form 8-K,
    filed January 11, 2006, and herein incorporated by
    reference.*10
.34

Summary of Director Compensation Plan, effective as of
    January 1, 2006; previously filed as Exhibit 10.34 to
    the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2007, filed
    April 1, 2008, and herein incorporated by reference.*10
.35

Form of Triad Guaranty Inc. 2006 Long-Term Stock Incentive Plan;
    previously filed as Exhibit 10.35 to the Registrants
    Current Report on
    Form 8-K,
    filed May 23, 2006, and herein incorporated by reference.*10
.36

Amendment to Employment Agreement, dated July 15, 2006,
    between Ronnie D. Kessinger and the Registrant; previously filed
    as Exhibit 10.36 to the Registrants Current Report on
    Form 8-K,
    filed July 17, 2006, and herein incorporated by reference.*10
.37

Agreement, dated March 30, 2006, entered into between the
    Registrant and Kenneth W. Jones; previously filed as
    Exhibit 10.1 to the Registrants Current Report on
    Form 8-K,
    filed April 5, 2006, and herein incorporated by reference.*10
.38

Resignation and Release Agreement, dated March 20, 2006,
    entered into by and between the Registrant and Eric B. Dana;
    previously filed as Exhibit 10.2 to the Registrants
    Current Report on
    Form 8-K,
    filed April 5, 2006, and herein incorporated by reference.*10
.39

Employment Agreement, dated August 15, 2006, between the
    Registrant and Kenneth N. Lard; previously filed as
    Exhibit 10.37 to the Registrants Current Report on
    Form 8-K,
    filed August 21, 2006, and herein incorporated by
    reference.*10
.40

Amendment to Letter Agreement, dated December 26, 2006,
    between Mark K. Tonnesen and the Registrant; previously filed as
    Exhibit 10.40 to the Registrants Current Report on
    Form 8-K,
    filed December 28, 2006, and herein incorporated by
    reference.*10
.41

Executive/Key Employee Phantom Stock Award Agreement between the
    Registrant and Mark K. Tonnesen, dated December 26, 2006;
    previously filed as Exhibit 10.41 to the Registrants
    Current Report on
    Form 8-K,
    filed December 28, 2006, and herein incorporated by
    reference.*10
.42

Second Amendment to Employment Agreement, dated January 18,
    2007, between Ronnie D. Kessinger and the Registrant; previously
    filed as Exhibit 10.42 to the Registrants Current
    Report on
    Form 8-K;
    filed January 19, 2007, and herein incorporated by
    reference.*10
.43

Form of Executive/Key Employee Restricted Stock Agreement under
    Triad Guaranty Inc. 2006 Long-Term Stock Incentive Plan;
    previously filed as Exhibit 10.43 to the Registrants
    Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2006, filed
    March 16, 2007, and herein incorporated by reference.*10
.44

Form of Executive Stock Option Agreement under Triad Guaranty
    Inc. 2006 Long-Term Stock Incentive Plan; previously filed as
    Exhibit 10.44 to the Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2006, filed
    March 16, 2007, and herein incorporated by reference.*10
.45

Form of Outside Director Restricted Stock Agreement under Triad
    Guaranty Inc. 2006 Long-Term Stock Incentive Plan; previously
    filed as Exhibit 10.45 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended December 31, 2006, filed
    March 16, 2007, and herein incorporated by reference.*10
.46

Form of Outside Director Stock Option Agreement under Triad
    Guaranty Inc. 2006 Long-Term Stock Incentive Plan; previously
    filed as Exhibit 10.46 to the Registrants Annual
    Report on
    Form 10-K
    for the fiscal year ended December 31, 2006, filed
    March 16, 2007, and herein incorporated by reference.*10
.47

Summary of Director Compensation Plan, effective as of
    May 17, 2007; previously filed as Exhibit 10.47 to the
    Registrants Annual Report on
    Form 10-K
    for the fiscal year ended December 31, 2007, filed
    April 1, 2008, and herein incorporated by reference.*10
.48

Credit Agreement, dated as of June 28, 2007, among the
    Registrant, Bank of America, N.A., and the other lenders party
    thereto; previously filed as Exhibit 10.47 to the
    Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended June 30, 2007, filed
    August 9, 2007, and herein incorporated by reference. 116




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##### Table of Contents



ExhibitNumber

Description of Document10
.49

Form of 2008 Executive/Key Employee Restricted Stock Award
    Agreement pursuant to the 2006 Long-Term Stock Incentive Plan;
    previously filed as Exhibit 10.48 to the Registrants
    Current Report on
    Form 8-K,
    filed March 4, 2008 and herein incorporated by reference.*10
.50

Employment Agreement, dated March 28, 2008, between the
    Registrant and Kenneth C. Foster; previously filed as
    Exhibit 10.50 to the Registrants Annual Report on
    Form 10-K
    for the year ended December 31, 2007, filed April 1,
    2008, and herein incorporated by reference.*10
.51

Summary of 2008 Executive Retention Program; previously filed as
    Exhibit 10.51 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended March 31, 2008, filed
    May 12, 2008, and herein incorporated by reference.*10
.52

Summary of 2008 Executive Severance Program; previously filed as
    Exhibit 10.52 to the Registrants Quarterly Report on
    Form 10-Q
    for the quarterly period ended March 31, 2008, filed
    May 12, 2008, and herein incorporated by reference.*10
.53

Amended and Restated Employment Agreement, dated April 23,
    2008, between the Registrant and Mark K. Tonnesen; previously
    filed as Exhibit 10.53 to the Registrants Quarterly
    Report on
    Form 10-Q
    for the quarterly period ended March 31, 2008, filed
    May 12, 2008, and herein incorporated by reference.*10
.54

Letter Agreement, dated July 17, 2008, between the
    Registrant and Mark K. Tonnesen; previously filed as
    Exhibit 10.54 to the Registrants Current Report on
    Form 8-K,
    filed July 17, 2008, and herein incorporated by reference.*10
.55

Letter Agreement, dated July 17, 2008, between the
    Registrant and William T. Ratliff, III; previously filed as
    Exhibit 10.55 to the Registrants Current Report on
    Form 8-K,
    filed July 17, 2008, and herein incorporated by reference.*10
.56

Letter Agreement, dated October 22, 2008, between the
    Registrant and Kenneth W. Jones; previously filed as
    Exhibit 10.56 to the Registrants Current Report on
    Form 8-K,
    filed October 22, 2008, and herein incorporated by
    reference.*10
.57

Summary of 2009 Executive Compensation Program; previously filed
    as Exhibit 10.57 to the Registrants Current Report on
    Form 8-K,
    filed November 25, 2008, and herein incorporated by
    reference.*10
.58

Form of Executive/Key Employee Phantom Stock Award Agreement
    under Triad Guaranty Inc. 2006 Long-Term Stock Incentive Plan;
    previously filed as Exhibit 10.58 to the Registrants
    Current Report on
    Form 8-K,
    filed January 29, 2009, and herein incorporated by
    reference.*10
.59

Summary of Board of Directors Compensation Program, effective
    October 2008.*21
.1

Subsidiaries of the Registrant.23
.1

Consent of Independent Registered Public Accounting Firm31
.1

Certification of Principal Executive Officer and Principal
    Financial Officer pursuant to
    Rule 13a-14(a)
    or 15d-14(a) of the Securities Exchange Act of 1934, as amended,
    as adopted pursuant to Section 302 of the Sarbanes-Oxley
    Act of 2002.32
.1

Certification of Principal Executive Officer and Principal
    Financial Officer pursuant to 18 U.S.C. Section 1350,
    as adopted pursuant to Section 906 of the Sarbanes-Oxley
    Act of 2002.**Our SEC file number reference for documents filed with the SEC
    pursuant to the Securities Exchange Act of 1934, as amended, is
    000-22342.     *
    
    Management contract or compensatory plan or arrangement.**
    
    The following exhibit shall not be deemed filed for
    purposes of Section 18 of the Securities Exchange Act of 1934,
    or otherwise subject to the liability of that Section. In
    addition, Exhibit No. 32.1 shall not be deemed
    incorporated into any filing under the Securities Act of 1933 or
    the Securities Exchange Act of 1934. 117