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

                                    FORM 10-K

[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934 For the fiscal year ended December 31, 2000
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the transition period from ___________ to ___________
Commission file number 0-22342
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                               TRIAD GUARANTY INC.
             (Exact name of registrant as specified in its charter)

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

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

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

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

                                      NONE

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

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

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

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

The  aggregate  market  value of the voting stock held by  nonaffiliates  of the
registrant  as of March 27, 2001,  computed by reference to the last reported
price at which the stock was sold on such date, was $202,941,295.

The number of shares of the registrant's common stock, par value $.01 per share,
outstanding as of March 27, 2001, was 13,356,610.

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

    TRIAD GUARANTY INC.                                        PART III
    PROXY STATEMENT FOR 2001 ANNUAL MEETING
    OF STOCKHOLDERS
<PAGE>

                                     PART I

ITEM 1.       BUSINESS
-------       --------

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

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

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

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

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

TYPES OF MORTGAGE INSURANCE PRODUCTS

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


                                       2
<PAGE>

PRIMARY INSURANCE

     Primary insurance  provides mortgage default protection on individual loans
and covers unpaid loan  principal,  delinquent  interest,  and certain  expenses
associated with the default and subsequent foreclosure (collectively, the "claim
amount").  The  claim  amount,  to which  the  appropriate  coverage  percentage
(typically 15% to 35% as of December 31, 2000) is applied, generally ranges from
110% to  115%  of the  unpaid  principal  balance  of the  loan.  The  Company's
obligation  to an  insured  lender  with  respect  to a claim is  determined  by
applying the  appropriate  coverage  percentage to the claim  amount.  Under its
master policy,  the Company has the option of paying the entire claim amount and
taking title to the mortgaged property or paying the coverage percentage in full
satisfaction of its obligations under the insurance  written.  Primary insurance
can be placed on many types of loan  instruments and generally  applies to loans
secured by mortgages on owner occupied homes.  The Company  underwrites  primary
insurance on a  loan-by-loan  basis and on a delegated  underwriting  basis to a
select group of lenders.  Mortgage  originators who participate in the Company's
delegated  program are allowed to issue a certificate  of insurance on the loans
it underwrites if certain strict qualifications are met.

     The Company offers primary  coverage  generally from 6% to 35% of the claim
amount, with most coverage from 15% to 35% as of December 31, 2000. The coverage
percentage provided by the Company is selected by the insured lender, subject to
the Company's underwriting approval, usually in order to comply with Freddie Mac
and Fannie Mae requirements to reduce their loss exposure on loans they purchase
to 75% or less of the property's value at the time the loan is originated.

     Since  1999,  Fannie  Mae and  Freddie  Mac have  accepted  lower  coverage
percentages  for certain  categories  of mortgages  when the loan is approved by
their automated  underwriting  services.  The reduced coverage percentages limit
loss  exposure  to 80% or less of the  property's  value at the time the loan is
originated.

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

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

                                       3
<PAGE>

This deferred monthly premium product decreases the amount of cash required from
the  borrower  at closing,  therefore  making home  ownership  more  affordable.
Monthly premium plans represented  approximately 96% of new insurance written in
2000. The Company expects that the percentage of new business written on monthly
premium plans will remain near the current level.

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

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

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

POOL INSURANCE

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

     In the second quarter of 2000, the Company began to participate in modified
pool  insurance  programs  on loans  purchased  by Freddie  Mac.  Modified  pool
insurance  provides coverage for a specified  percentage of the claim amount for
each loan insured,  subject to an overall stop-loss provision  applicable to the
entire  pool of loans  insured.  To date  insurance  subject  to  modified  pool
programs represents an immaterial amount of production.

BULK TRANSACTIONS

     A bulk transaction  generally involves insuring a large group of previously
originated or newly  originated  mortgages under  negotiated  terms. In 2000 the
Company  implemented  a process to analyze  and price  mortgage  insurance  as a
credit  enhancement  on  these  bulk  transactions   consistent  with  its  risk
management approach.


                                       4
<PAGE>

RISK SHARING PRODUCTS

     The  Company has in place  mortgage  insurance  programs  designed to allow
lenders to share in the risks of  mortgage  insurance.  One such  program is the
captive  reinsurance   program.   Under  the  captive  reinsurance   program,  a
reinsurance company,  generally an affiliate of the lender, assumes a portion of
the risk associated with the lender's insured book of business in exchange for a
percentage of the premium.  Typically,  the reinsurance  program is an excess of
loss arrangement with a maximum  exposure for the captive  reinsurance  company.
These  captive  reinsurance  programs  may also be in the form of a quota  share
arrangement.  In addition,  the Company has  insurance  in force under  programs
which  increases  a  lender's  share of the risk of loss on an  insured  book of
business  and  provides  for a fee  to  the  lender  for  this  increased  risk.
Approximately 25% of the Company's  insurance in force at December 31, 2000, was
subject to risk sharing programs.

     Regulatory and industry  issues exist  regarding the future of risk-sharing
programs  currently  being  marketed  within the  mortgage  insurance  industry.
Management  is unable to predict  the impact of the  regulatory  issues on these
products.

CANCELLATION OF INSURANCE

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

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

     Mortgage  insurance  coverage can also be cancelled when an insured loan is
refinanced.  If the Company provides insurance on the refinanced  mortgage,  the
policy  on the  refinanced  home  loan  is  considered  new  insurance  written.
Therefore,  continuation  of the Company's  coverage from a refinanced loan to a
new loan results in both a cancellation of insurance and new insurance  written.
The percentage of new insurance written from refinanced loans was 13.2%,  25.0%,
and 31.7% in 2000, 1999, and 1998, respectively.

     To the extent canceled insurance  coverage in areas  experiencing  economic
growth is not replaced by new  insurance in such areas,  the  percentage  of the
Company's  book of business in  economically  weaker  areas may  increase.  This

                                       5
<PAGE>

development may occur during periods of heavy mortgage  refinancing.  Refinanced
loans in regions experiencing economic growth are less likely to require private
mortgage  insurance,  while borrowers in economically  distressed areas are less
likely to qualify for refinancing because of depreciated real estate values. The
percentage of the  Company's  insurance in force at the end of the previous year
that was canceled during the following year was 17.4%, 22.9%, and 30.0% in 2000,
1999, and 1998,  respectively.  The cancellations have not had a material impact
on the geographic dispersion of the Company's risk in force.

CUSTOMERS

     Residential  mortgage lenders such as mortgage  bankers,  mortgage brokers,
commercial  banks and savings  institutions  are the principal  customers of the
Company. At December 31, 2000,  approximately 62% of the Company's risk in force
came from mortgage  bankers,  18% from  mortgage  brokers,  16% from  commercial
banks, and 4% from savings institutions. At December 31, 1999, approximately 57%
of the  Company's  risk in force came from mortgage  bankers,  19% from mortgage
brokers, 18% from commercial banks, and 6% from savings  institutions.  Although
mortgage  lenders are the Company's  principal  customers,  individual  mortgage
borrowers generally bear the cost of primary insurance coverage.

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

     The master  policy  sets forth the terms and  conditions  of the  Company's
mortgage  insurance  policy.  The master  policy does not obligate the lender to
obtain  insurance  from the  Company,  nor does it obligate the Company to issue
insurance on a particular  loan. The master policy provides that the lender must
submit  individual  loans for insurance to the Company and the loan,  subject to
certain  underwriting  criteria,  must be  approved  by the  Company  to  effect
coverage  (except in the case of delegated  underwriting and when the originator
has the authority to approve  coverage within certain  guidelines).  The Company
had 7,190  master  policyholders  at  December  31,  2000,  compared to 6,948 at
December 31, 1999.

     The Company's ten largest customers were responsible for 30.0%,  31.0%, and
31.7%  of  direct  risk  in  force  at  December  31,  2000,   1999,  and  1998,
respectively.  No  single  customer  of  the  Company  (including  branches  and
affiliates of that  customer)  accounted for revenues  greater than 10% of total
revenues for 2000.  The largest  single  customer of the Company  accounted  for
6.6%,  9.2%,  and 9.5% of risk in force at December  31, 2000,  1999,  and 1998,
respectively.

                                       6

<PAGE>

SALES AND MARKETING

     The Company currently markets its insurance products through a sales force,
including sales  management,  of approximately 50 professionals and an exclusive
commissioned general agency serving a specific geographic market. The Company is
licensed  to do business  in 46 states and the  District  of Columbia  and has a
license application pending in one state.

     In 2000,  the Company  strengthened  its sales force by  restructuring  the
sales team into five sales  regions,  each with its own manager.  These regional
managers  report to a field  administrator  who oversees  all account  executive
activities.  The field administrator  reports directly to a senior executive who
oversees all sales  activities for the Company,  including those of the national
account  market  representatives.  This  reporting  structure  allows the senior
executive  in charge of all sales  activities  to focus time on large,  national
accounts while remaining in control of all other sales activities. Currently the
Company is approved to do business with 19 of the top 30 lenders and  production
from  these  lenders  accounted  for  approximately  33%  of the  Company's  new
insurance  written in 2000 compared to 13% in 1999. The Company will continue to
evaluate geographic  expansion  opportunities as well as the need for additional
sales representation.

     The  success of the  Company is  dependent  upon the  services of its sales
force and its general  agency.  For 2000,  the  Company's  commissioned  general
agency produced  approximately 8% of the Company's new direct insurance  written
while the salaried account  executives and the national account  representatives
produced the remainder.

     The marketing  department's mission is to develop and implement programs in
support  of the  Company's  sales  objectives.  A  variety  of tools are used to
achieve this goal including direct mail, public relations,  marketing materials,
internal/external publications,  convention trade shows, and the World Wide Web.
A national advertising and public relations campaign designed to raise corporate
visibility to lenders and investors is also being utilized to achieve this goal.
In 1999,  the Company  strengthened  its  marketing  team by  restructuring  the
department  and  hiring  a senior  level  marketing  executive  to  oversee  all
marketing efforts.  Also in 1999, the Company completely revised its web site to
be  more   user-friendly  and  to  provide  more  functionality  for  customers,
investors, homebuyers, and real estate professionals.

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


                                       7
<PAGE>

COMPETITION AND MARKET SHARE

     The Company and other  private  mortgage  insurers  compete  directly  with
federal and state governmental and quasi-governmental agencies,  principally the
Federal Housing Administration ("FHA"). These agencies sponsor government-backed
mortgage  insurance  programs which accounted for  approximately 41% of high LTV
loans in 2000 and 48% in 1999. In addition to competition from federal agencies,
the  Company  and  other  private   mortgage   insurers  face  competition  from
state-supported  mortgage insurance funds.  Several of these states (among them,
California,  Connecticut,  Massachusetts,  New York,  and  Vermont)  have  state
housing insurance funds which are either independent agencies or affiliated with
state  housing  agencies.  Indirectly,  the Company also  competes  with certain
mortgage lenders which forego private mortgage insurance and self-insure against
the risk of loss from  defaults  on all or a portion  of their low down  payment
mortgage loans.

     Fannie Mae and Freddie Mac have the ability to modify the required level of
mortgage  insurance  coverage which should be maintained by lenders on loans for
resale to the secondary market.  The reduction in the amount of private mortgage
insurance  coverage  required  or the  adoption  of private  mortgage  insurance
substitutes  by Fannie Mae or Freddie Mac could  adversely  affect the Company's
financial condition and results of operations.

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

     The private mortgage  insurance  industry consists of eight active mortgage
insurance  companies including Triad,  Mortgage Guaranty Insurance  Corporation,
General Electric Mortgage Insurance Corporation, PMI Mortgage Insurance Co., CMG
Mortgage Insurance Co., United Guaranty Residential Insurance Company,  Republic
Mortgage  Insurance  Company,  and Radian  Guaranty  Inc.  Triad is the  seventh
largest private  mortgage  insurer based on 2000 market share and,  according to
industry  data, had a 2.7% share of net new mortgage  insurance  written in 2000
compared to 2.3% in 1999.

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

UNDERWRITING PRACTICES

     The  Company  considers  effective  risk  management  to be critical to its
long-term financial stability. Market analysis, prudent underwriting, the use of

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<PAGE>

automated  risk  evaluation  models,  auditing,  and  customer  service  are all
important elements of the Company's risk management process.

UNDERWRITING PERSONNEL

     The Company's  Senior Vice President of Risk  Management and Vice President
of Underwriting have been in their positions since shortly after the Company was
founded  and  report  directly  to the  Executive  Vice  President  in charge of
Services  and  Risk  Management.  In  addition  to  a  centralized  underwriting
department in the home office, the Vice President of Underwriting is responsible
for the Company's regional offices in Arizona,  California,  Colorado,  Georgia,
Illinois,  Pennsylvania, and Texas. The Senior Vice President of Risk Management
is  responsible  for  assessing  the risk  factors  used by the  Company  in its
underwriting procedures and for the quality control function.

     The Company employed an underwriting  staff of 34 at December 31, 2000. The
Company's  field  underwriters  and  underwriting  managers are limited in their
authority to approve  programs for certain  mortgage loans. The authority levels
are  tied  to  underwriting  position,  knowledge,  and  experience  and  relate
primarily to loan amounts and property  type.  All loans  insured by the Company
are subject to quality control reviews.

     The Company also  utilizes  various  non-employee  underwriters  to perform
contract underwriting services.  The number can vary substantially  depending on
the need for this service.

RISK MANAGEMENT APPROACH

     The  Company's  risk  management  objective  is to  build  a  portfolio  of
insurance in force which produces earned premiums in excess of paid claims.  The
Company  evaluates  risk based on  historical  performance  of risk  factors and
utilizes automated  underwriting systems in the risk selection process to assist
the  underwriter  with  decision  making.  This process  evaluates the following
categories of risk:

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

     o    PURPOSE  AND  TYPE  OF  LOAN.   The  Company   analyzes  five  general
          characteristics  of a loan to  evaluate  its  level of  risk:  (i) LTV
          ratio;  (ii) purpose of the loan; (iii) type of loan instrument;  (iv)
          level of documentation;  and, (v) type of property.  The Company seeks
          loan types with proven track  records for which an  assessment of risk

                                       9

<PAGE>

          can be readily made and the premium received sufficiently offsets that
          risk. Loans having higher LTV ratios are charged a higher premium,  as
          are other loans which have been shown to carry higher  risks,  such as
          adjustable rate mortgages  ("ARMs").  Certain  categories of loans are
          not actively  pursued by the Company  because such loans are deemed to
          have a disproportionate amount of risk, including scheduled negatively
          amortizing ARMs, investment properties, and subprime loans.

     o    INDIVIDUAL LOAN AND BORROWER.  Except to the extent that the Company's
          delegated  underwriting  program  and Freddie  Mac's and Fannie  Mae's
          automated  underwriting  services  are  being  utilized,  the  Company
          evaluates  insurance  applications based on analysis of the borrower's
          ability  and   willingness   to  repay  the  mortgage   loan  and  the
          characteristics and value of the mortgaged  property.  The analysis of
          the borrower includes  reviewing the borrower's housing and total debt
          ratios as well as the borrower's  Fair,  Isaac and Co., Inc.  ("FICO")
          credit  score,  as reported by credit  rating  agencies.  Loans may be
          submitted  under the Stick With Triad program  provided the loans meet
          the program requirements. Within this program, the degree to which the
          borrower  must meet  certain  underwriting  standards,  as well as the
          amount of documentation  required,  is a function of the credit score.
          (For  further  description  of  the  Stick  With  Triad  program,  see
          Underwriting  Process  below.) In the case of delegated  underwriting,
          compliance with program  parameters is monitored by periodic audits of
          delegated business.  With the automated underwriting services provided
          by Freddie Mac and Fannie Mae, lenders are able to obtain approval for
          mortgage guaranty  insurance with any participating  mortgage insurer.
          Triad works with both agencies in offering  insurance services through
          their  systems,  while  monitoring  the risk quality of loans  insured
          through such systems.

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

UNDERWRITING PROCESS

     The Company accepts  applications for insurance under three basic programs:
a  traditional   fully-documented   program,   a  credit-score   driven  reduced
documentation  program,  and a delegated  underwriting  program  which  allows a
lender's underwriters to commit insurance to a loan based on strict, agreed upon
underwriting guidelines.  The Company also accepts loans approved through Feddie
Mac's or Fannie Mae's automated underwriting systems.

     The Company  utilizes  nationwide  underwriting  guidelines to evaluate the
potential  risk of default on mortgage loans  submitted for insurance  coverage.
These  guidelines  have  evolved  over  time  and  take  into  account  the loss
experience of the entire  private  mortgage  insurance  industry.  They also are
largely  influenced by Freddie Mac and Fannie Mae underwriting  guidelines.  The
Company  believes its  guidelines  generally are  consistent  with those used by

                                       10
<PAGE>

other  private  mortgage  insurers  with  respect to the types of loans that the
Company will insure.  Specific  underwriting  guidelines  applicable  to a given
local, state, or regional market are modified to address concerns resulting from
the Company's review of regional economies and housing patterns.

     Subject to the Company's  underwriting  guidelines  and exception  approval
procedures,  the Company  expects its  internal  and  contract  underwriters  to
utilize their  experience and business  judgement in evaluating each loan on its
own merits.  Accordingly,  the Company's  underwriting  staff has  discretionary
authority  to insure  loans which  deviate in certain  minor  respects  from the
Company's  underwriting  guidelines.  More significant exceptions are subject to
management approval. In all such cases, compensating factors must be identified.
The  predominant  reason  for  such  deviations  involves  instances  where  the
borrower's  debt-to-income ratio exceeds the Company's guidelines. To compensate
for exceptions,  the Company's underwriters give favorable consideration to such
factors as excellent  borrower credit history,  the availability of satisfactory
cash reserves after closing, and employment stability.

     In addition to the  borrower's  willingness  and ability to repay the loan,
the Company  believes  that  mortgage  default  risk is affected by a variety of
other factors,  including the borrower's  employment  status.  Insured  mortgage
loans made to  self-employed  borrowers  are  perceived  by the  Company to have
higher risk of claim,  all other  factors  being equal,  than loans to borrowers
employed by third parties.  The Company's  percentage of risk in force involving
self-employed borrowers was 2.4% at both December 31, 2000 and 1999.

     The  Company's  Stick With Triad  program  featuring  the Slam Dunk Loan SM
approval  process allows lenders to submit insurance  applications  with reduced
documentation. Under this program, Triad issues a certificate of insurance based
on the  borrower's  FICO credit score or the approval of the loan through Fannie
Mae's or Freddie  Mac's  automated  underwriting  system.  The Company  issues a
certificate of insurance  without the standard  underwriting  process if certain
program parameters are met and the borrower has a credit score above established
thresholds. Documentation submission requirements for non-automated underwritten
loans  vary  depending  on the  borrower's  credit  score.  The Stick With Triad
program represented approximately 65% of the Company's commitment volume in both
2000 and 1999.  The  Company  randomly  and  through  adverse  selection  audits
lenders' files on loans submitted under this program.

     The Company's delegated  underwriting program, in addition to the Company's
risk  management  strategies,   utilizes  extensive  quality  control  practices
including reunderwriting, reappraisal, and similar procedures following issuance
of the policy.  Standards for type of loan, property type, and credit history of
the borrower are established  consistent  with the Company's risk strategy.  The
program  has  allowed  the  Company  to serve a greater  number  of the  larger,
well-established  mortgage  originators.  The Company's  delegated  underwriting
program  accounted  for 23% of  commitments  received in 2000 compared to 17% in
1999  and  16% in  1998.  Many  lenders  who  are  not  part  of  the  delegated
underwriting  program participate in the Stick With Triad underwriting  program.
The  performance of loans insured under the delegated  underwriting  program has
been comparable to the Company's non-delegated business.

                                       11
<PAGE>

     The Company utilizes its underwriting  staff as well as contract  personnel
to  provide  contract  underwriting  services  to  customers.  For a fee,  Triad
underwrites applications for secondary market compliance, while at the same time
assessing the application for mortgage  insurance,  if applicable.  In addition,
the   Company   offers   Fannie   Mae's   Desktop   Originator(R)   and  Desktop
Underwriter(R), as well as the personnel to conduct the underwriting tasks, as a
service to its  contract  underwriting  customers.  The Company  also offers its
contract   underwriting   customers   direct   access  to  Freddie   Mac's  Loan
Prospector(R). These products, which are designed to streamline and reduce costs
in the mortgage  origination  process,  supply the Company's customers with fast
and accurate service regarding loan compliance and Fannie Mae's or Freddie Mac's
decision for loan purchase or securitization.

OTHER RISK MANAGEMENT

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

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

CLAIMS-PAYING ABILITY RATINGS

     Certain  national  mortgage  lenders  and a large  segment of the  mortgage
securitization market,  including Fannie Mae and Freddie Mac, generally will not
purchase high LTV  mortgages or  mortgage-backed  securities  unless the insurer
issuing private mortgage insurance  coverage has a claims-paying  ability rating
of at least "AA-" by either Standard & Poor's Rating Services  ("S&P") or Fitch,
Inc.  ("Fitch") or a financial  strength rating from Moody's  Investors  Service
("Moody's")  of at least "Aa3." Private  mortgage  insurers are not rated by any
other independent  nationally-recognized  insurance industry rating organization
or agency (such as the A.M. Best Company).

                                       12

<PAGE>

     Credit ratings  generally are considered an important element in a mortgage
insurer's ability to compete for new business,  indicating the insurer's present
financial strength and capacity to pay future claims. Fannie Mae and Freddie Mac
require mortgage  guaranty  insurers to maintain two ratings of "AA-" or better.
Triad is rated  "AA" by both S&P and Fitch  and,  in the first  quarter of 2001,
received a rating of Aa3 from Moody's.

     S&P defines  insurers rated "AA" as having very strong  financial  security
characteristics,  differing only slightly from those rated higher. Fitch defines
insurance  companies  rated "AA" as  possessing  very  strong  capacity  to meet
policyholder and contract  obligations,  risk factors are modest, and the impact
of any  adverse  business  and  economic  factors is  expected to be very small.
Moody's defines insurers rated "Aa" as offering  exceptional  financial security
but appearing to have  somewhat  larger  long-term  risks than  companies  rated
"Aaa".  Ratings  from  S&P and  Fitch  are  modified  with a "+" or "-"  sign to
indicate the relative  position of a company  within its category.  Moody's uses
numeric  modifiers  to refer to the ranking  within a group - with "1" being the
highest and "3" being the lowest.

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

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

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

REINSURANCE

     The use of reinsurance as a source of capital and as a risk management tool
is well established within the mortgage insurance industry. Reinsurance does not
legally  discharge an insurer from its primary  liability for the full amount of
the risk it insures,  although it does make the reinsurer  liable to the primary

                                       13
<PAGE>

insurer. There can be no assurance that the Company's reinsurers will be able to
meet their obligations under the reinsurance agreements.

     Certain  premiums and losses are assumed  from and ceded to  non-affiliated
insurance companies under various quota share reinsurance agreements. The ceding
agreement  principally  provides  the Company with  increased  capacity to write
business and achieve a more favorable  geographic  dispersion of risk. Less than
0.1% of Triad's risk in force at December 31, 2000, and direct premiums  written
in 2000 were ceded in quota share  arrangements  to  non-affiliated  reinsurance
companies.

         Pursuant  to deeper  coverage  requirements  imposed  by Fannie Mae and
Freddie  Mac,   certain  loans  eligible  for  sale  to  such  agencies  with  a
loan-to-value  ratio of over 90% require insurance with a coverage percentage of
30%.  Certain states limit the amount of risk a mortgage insurer may retain with
respect to coverage  of an insured  loan to 25% of the claim  amount,  and, as a
result,  the deeper  coverage  portion of such insurance  must be reinsured.  To
minimize  reliance on third party reinsurers and to permit the Company to retain
the premiums and related risk on deeper coverage business,  Triad reinsures this
deeper  coverage  business  with  its  wholly-owned  subsidiary  Triad  Guaranty
Assurance  Corporation  ("TGAC").  As of  December  31,  2000,  TGAC had assumed
approximately $62.4 million in risk from Triad.

     Triad's product  offerings  include captive mortgage  reinsurance  programs
whereby an  affiliate  of a lender  reinsures a portion of the  insured  risk on
loans  originated  or  purchased  by  the  lender.  Triad  entered  the  captive
reinsurance   market  in  1999  with  the  LEAPSM   (Lower   Entry-   Additional
Profitability)  program.  The  LEAP  program  is  an  excess  of  loss  mortgage
reinsurance  program that provides  lenders an  opportunity to share in the risk
and return of mortgage  insurance  on loans the lender  originates  or services.
Under  LEAP,  the lender  may elect a risk band with a  flexible  entry and exit
point.  LEAP  also  permits  cessions  greater  than the 25%  industry  standard
arrangements that existed prior to this program.

     The LEAP  program  allows the  lender to take  advantage  of the  Company's
innovative Capital GardSM program.  Capital Gard is an additional tool to manage
catastrophic  loss  risks on captive  excess of loss  structures.  Capital  Gard
permits  a  captive  reinsurer  to  spread  its  risk  to  other  non-affiliated
reinsurance  companies in the event of an economic  depression  just as property
and casualty  reinsurers  purchase  catastrophic  coverage to protect themselves
against severe natural  disasters.  The combination of the LEAP and Capital Gard
programs offer risk management  opportunities with increased flexibility,  based
on the specific  needs of each  individual  lender.  Ceded premium under captive
reinsurance  agreements  represented  2.1% of direct  written  premiums  in 2000
compared to 0.2% in 1999.

     In November 1999, Triad formed Triad Re Insurance  Corporation ("Triad Re")
as a wholly-owned  sponsored captive  reinsurance  company domiciled in Vermont.
Triad Re was  formed to allow  small and  mid-sized  lenders to  participate  in

                                       14
<PAGE>

captive reinsurance arrangements with reduced up-front capital costs and without
co-mingling its risk with other lenders.  Triad Re was initially  capitalized in
February 2000, with regulatory capital of $1.0 million. As of December 31, 2000,
approximately  $4 million of Triad's  risk in force had been ceded to  sponsored
captive reinsurer cells under participating agreements with Triad Re.

     The Company also has in place  reinsurance  agreements with  non-affiliated
reinsurers in association with certain of the Company's non-captive risk sharing
programs.  The reinsurance  agreements are excess of loss contracts  whereby the
reinsurer  will  indemnify the Company with respect to losses covered as defined
by the reinsurance  agreements.  In 2000,  1.9% of the Company's  direct written
premium was ceded to  reinsurers  under these  agreements as compared to 1.1% in
1999.

     At the end of 2000,  24.8% of Triad's  insurance  in force had been insured
under some type of  risk-sharing  arrangement  as  compared to 15.4% at year end
1999. Risk-sharing  arrangements  represented 42.9% of Triad's net new insurance
written in 2000 as compared to 22.9% in 1999.

     The Company  continues to maintain excess of loss reinsurance  arrangements
designed to protect the Company in the event of a catastrophic  level of losses.
Throughout 2000,  Triad maintained $75 million and had incremental  access to an
additional  $50  million of excess of loss  reinsurance  through  non-affiliated
reinsurers  that  have  claims-paying  ability  ratings  of "AA" or  "AAA"  from
Standard & Poors.

DEFAULTS AND CLAIMS

DEFAULTS

     The claim process on private  mortgage  insurance begins with the insurer's
receipt  of  notification  from the lender of a default  on an  insured's  loan.
Default is defined in the primary  master  policy as the failure by the borrower
to pay,  when due, an amount at least equal to the  scheduled  monthly  mortgage
payment under the terms of the mortgage.  The master policy requires  lenders to
notify the Company of default on a mortgage payment within 10 days of either (i)
the date on which the  borrower  becomes four months in default or (ii) the date
on which any legal  proceeding  affecting the loan commences,  whichever  occurs
first.  Notification is required within 45 days of default if it occurs when the
first  payment is due.  The  incidence  of default is  affected  by a variety of
factors including, but not limited to, change in borrower income,  unemployment,
divorce,   illness,   the  level  of  interest  rates,   and  general   borrower
creditworthiness. Defaults that are not cured generally result in a claim to the
Company.  Borrowers may cure defaults by making all delinquent  loan payments or
by selling the property and satisfying all amounts due under the mortgage.

                                       15
<PAGE>



     The following  table shows default  statistics as of December 31, 2000, and
the preceding four year ends:

<TABLE>
<CAPTION>
                               Default Statistics

                                                                              December 31
                                                                              -----------
                                                             2000       1999       1998       1997       1996
                                                             ----       ----       ----       ----       ----
<S>                                                       <C>        <C>        <C>        <C>        <C>
Number of insured loans in force........................  123,046    108,623     97,222     82,682     62,334
Number of loans in default..............................      740        690        518        388        273
Percentage of loans in default (default rate)...........    0.60%      0.64%      0.53%      0.47%      0.44%
Dollar amount of insured loans in default (000's).......  $77,423    $67,802    $50,882    $37,828    $25,253
Dollar amount of direct risk (gross of reinsurance)
   with respect to insured loans in default (000's).....  $20,743    $18,108    $13,216     $9,249     $5,770
Reserve per delinquent loan.............................  $20,253    $21,378    $23,442    $23,094    $23,097
</TABLE>

CLAIMS

     Claims  result from  defaults  that are not cured.  The frequency of claims
does not directly  correlate to the  frequency of defaults  due, in part, to the
Company's  loss  mitigation  efforts  and the  borrower's  ability  to  overcome
temporary  financial  setbacks.  The likelihood  that a claim will result from a
default,  and the amount of such  claim,  principally  depend on the  borrower's
equity at the time of default and the  borrower's  (or the lender's)  ability to
sell the home for an amount  sufficient  to satisfy  all  amounts  due under the
mortgage,  as well as the effectiveness of loss mitigation efforts.  The ability
to mitigate a claim is affected by the local  housing  market,  interest  rates,
employment  growth,  the  housing  supply,  and the  borrower's  desire to avoid
foreclosure.  During the default  period,  the Company works with the insured as
well as the  borrower  in an  effort to  either  reinstate  the loan or sell the
property for an amount which results in a reduced claim prior to foreclosure.

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

     Generally,  the  Company  does not pay a claim for loss  under  the  master
policy  if the  application  for  insurance  for the loan in  question  contains
fraudulent information, material omissions, or misrepresentations which increase
the risk  characteristics of the loan. The Company's master policy also excludes
any cost or  expense  related  to the  repair or remedy of any  physical  damage

                                       16
<PAGE>

(other than "normal wear and tear") to the property  collateralizing  an insured
mortgage  loan.  Such  physical  damage  may  be  caused  by  accident,  natural
occurrence or otherwise.

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

     Within 60 days after the claim has been  filed,  the Company has the option
of either (i) paying the coverage  percentage  specified on the  certificate  of
insurance (usually 15% to 35% of the claim), with the insured retaining title to
the underlying property and receiving all proceeds from the eventual sale of the
property,  or (ii) paying 100% of the claim  amount in exchange for the lender's
conveyance of good and marketable title to the property to the Company, with the
Company selling the property for its own account.  The Company chooses the claim
settlement  option believed to cost the least.  In general,  the Company settles
claims by paying the coverage  percentage of the claim  amount.  At December 31,
2000, the Company held one property with a net realizable value of $99,482 which
was acquired by exercising its option to pay 100% of the claim amount.

LOSS MITIGATION

     Once a default  notice is  received,  the Company  attempts to mitigate its
loss.  Through proactive  intervention  with insured lenders and borrowers,  the
Company has been  successful  in reducing  the number and severity of its claims
for loss. Loss mitigation techniques include  pre-foreclosure sales, advances to
assist distressed  borrowers who have suffered a temporary economic setback, and
the use of repayment  schedules,  refinances,  loan  modifications,  forbearance
agreements, and deeds-in-lieu of foreclosure.  Such mitigation efforts typically
result in a savings to the Company over the percentage  coverage  amount payable
under the certificate of insurance. Through loss mitigation efforts, the Company
paid out approximately 68% of its potential  exposure on claims in 2000 compared
to 66% in 1999.

LOSS RESERVES

     The Company  establishes  reserves to provide  for the  estimated  costs of
settling  claims on loans  reported in default and estimates of loans in default

                                       17
<PAGE>

which have not been reported. Consistent with industry accounting practices, the
Company does not  establish  loss  reserves for future  claims on insured  loans
currently not in default.  Although the Company  believes  that overall  reserve
levels at December 31, 2000, are adequate to meet future obligations, due to the
inherent  uncertainty  of the reserving  process there can be no assurance  that
reserves will prove to be adequate to cover ultimate loss developments.

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

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

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










                                     18
<PAGE>

     The following table represents a reconciliation of the beginning and ending
loss reserves (net of reinsurance) for the periods indicated:
<TABLE>
<CAPTION>
          Reconciliation of Losses and Loss Adjustment Expense Reserves

                                                              Year Ended December 31
                                                              ----------------------
                                                                  (in thousands)
                                                2000      1999       1998      1997      1996
                                                ----      ----       ----      ----      ----
<S>                                            <C>       <C>        <C>       <C>       <C>
Reserve for losses and LAE,
   net of related reinsurance
   recoverables, at beginning of year.......   $14,723   $12,116    $ 8,909   $ 5,974   $ 3,703

Add losses and LAE incurred in respect
   of defaults occurring in:
     Current year (1).....................      11,229     9,322      7,953     6,023     4,673

     Prior years (1) (2)..................      (3,642)   (2,211)      (944)     (846)   (1,394)
                                                -------  -------    -------   -------    -------

Total incurred losses and LAE.............       7,587     7,111      7,009     5,177     3,279

Deduct losses and LAE paid in respect
   of defaults occurring in:
     Current year.........................         574       236        267       210       167

     Prior years..........................       6,760     4,268      3,535     2,032       841
                                                ------   -------    -------   -------    ------

Total payments............................       7,334     4,504      3,802     2,242     1,008

Reserve for losses and LAE, net
   of related reinsurance
   recoverables, at end of year ...........     14,976    14,723     12,116     8,909     5,974

Reinsurance recoverables on unpaid
   losses and LAE, at
   the end of year .......................          11        27         28        51       331
                                                ------   -------    -------   -------    ------


Reserve for unpaid losses and LAE,
   before deduction of reinsurance
   recoverables on unpaid losses, at
   end of year.............................    $14,987   $14,751    $12,143   $ 8,960   $ 6,305
                                               =======   =======    =======   =======   =======
<FN>
(1) Includes  loss and LAE  reserves  relating to loans which are in default but
    for which  default  notices have not been  received.
(2) Indicates a cumulative  redundancy in loss reserves at the beginning of each
    period. Redundancies result from overestimating ultimate claim amounts.
</FN>
</TABLE>

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

                                       19
<PAGE>

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

Analysis of Direct Risk in Force

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

LENDER AND PRODUCT CHARACTERISTICS

     The following  table  reflects the percentage of direct gross risk in force
(as  determined  on the basis of  information  available on the date of mortgage
origination) by the categories indicated on December 31, 2000 and 1999:

                                       20
<PAGE>
                              DIRECT RISK IN FORCE

                                                              December 31
                                                              -----------
PRODUCT TYPE:                                              2000           1999
                                                          -----           ----
Primary............................................       100.0%          100.0%
Pool...............................................         0.0%            0.0%
                                                         -------         -------
Total..............................................       100.0%          100.0%
                                                         =======         =======
                          Direct Primary Risk in Force
                                                              December 31
                                                              -----------
                                                           2000           1999
                                                           -----          ----
DIRECT RISK IN FORCE (dollars in millions)...........     $3,760          $3,223
LENDER CONCENTRATION:
Top 10 lenders (by original applicant)...............      30.0%           31.0%
LTV:
95.01% and above.....................................       2.5%            2.0%
90.01% to 95.00%.....................................      50.7%           50.0%
90.00 and below......................................      46.8%           48.0%
                                                         -------         -------
Total................................................     100.0%          100.0%
                                                         =======         =======
LOAN TYPE:
Fixed................................................      94.9%           94.5%
ARM (positive amortization) (1)......................       5.1%            5.5%
ARM (potential negative amortization) (2)............       0.0%            0.0%
ARM (scheduled negative amortization) (2)............       0.0%            0.0%
Other................................................       0.0%            0.0%
                                                         -------         -------
Total................................................     100.0%          100.0%
                                                         =======         =======
MORTGAGE TERM (3):
15 years and under...................................       3.2%            4.0%
Over 15 years........................................      96.8%           96.0%
                                                         -------         -------
Total................................................     100.0%          100.0%
                                                         =======         =======
PROPERTY TYPE:
Noncondominium (principally single-family detached)..      96.2%           95.6%
Condominium..........................................       3.8%            4.4%
                                                         -------         -------
Total................................................     100.0%          100.0%
                                                         =======         =======
OCCUPANCY STATUS:
Primary residence....................................      98.1%           98.6%
Second home..........................................       1.2%            1.1%
Nonowner occupied....................................       0.7%            0.3%
                                                         -------         -------
Total................................................     100.0%          100.0%
                                                         =======         =======
MORTGAGE AMOUNT (3):
$200,000 or less.....................................     82.3%            84.9%
Over $200,000........................................     17.7%            15.1%
                                                         -------         -------
Total................................................     100.0%          100.0%
                                                         =======         =======
(1)  Refers to loans where payment adjustments are the same as mortgage interest
     rate adjustments.
(2)  Scheduled negative amortization is defined by the Companyas the increase in
     loan  balance that will occur if interest  rates do not change.  Loans with
     potential negative amortization will not have increasing principal balances
     unless interest rates increase.
(3) The 1999 amounts have been restated to conform with current year results.

                                       21
<PAGE>

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

     Approximately  2.5% of the Company's  risk in force is comprised of the 97%
LTV product  ("97s"),  which is offered  primarily  to low and  moderate  income
borrowers.  The Company  believes  that these  "affordable  housing"  loans have
higher risks than its other insured  business and has often attracted  borrowers
with weak  credit  histories,  generally  resulting  in higher loss  ratios.  In
keeping  with the  Company's  established  risk  strategy,  the  Company has not
aggressively  solicited  this  segment of the  industry.  The  Company  does not
routinely delegate the underwriting of its 97% LTV product.

     In  2000  the  State  of  Illinois  Insurance  Department,  as  well as the
insurance departments of several other states, began to permit mortgage insurers
to  write  coverage  on  loans  in  excess  of 97% up to 100%  and,  in  certain
instances,  up to 103%.  This request was made in response to the development by
certain entities of the mortgage securitization market, including Fannie Mae and
Freddie Mac, of programs that allowed LTV's in excess of 97%. These programs are
designed to  accommodate  the  credit-worthy  borrower  who lacks the ability or
interest to provide a down  payment on a home.  The Company  accepts  loans with
LTV's greater than 97% on a limited basis.

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

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

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

                                       22
<PAGE>

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

     Loans on primary  residences  that were owner  occupied at the time of loan
origination  constituted  approximately  98% of the  Company's  risk in force at
December 31, 2000. Because management  believes that loans on non-owner occupied
properties  represent a  substantially  higher risk of claim  incidence  and are
subject to greater value declines than loans on primary homes,  the Company does
not actively pursue these loans.

     The  Company's  book of  business  is less  mature than that of the private
mortgage  insurance industry as a whole, with the Company's direct risk in force
having a weighted  average life of 2.8 years at December  31,  2000,  consistent
with the  weighted  average  life at year-end  1999,  compared  to an  estimated
industry average of 3.4 years at December 31, 2000.



















                                       23
<PAGE>



     The  following  table  shows the  percentage  of direct risk in force as of
December 31, 2000,  for policies  written from 1988 through 2000, as well as the
cumulative loss ratio (calculated as losses paid divided by premiums written, in
each  case for a  particular  certificate  year)  which  has  developed  through
December  31, 2000,  for the policies  written  during the years  indicated  and
excludes    the    effects    of     reinsurance:


  Certificate                           Percent      Cumulative Ratio of Losses
     Year      Direct Risk in Force     of Total     Paid to Premiums Written(1)
     ----      --------------------     --------     ---------------------------
                  (in millions)

      1988            $ 0.5                0.0%                15.4%

      1989              0.8                0.0                 24.0

      1990              1.8                0.0                 18.8

      1991              7.2                0.2                 11.9

      1992             25.7                0.7                  8.7

      1993             76.7                2.0                  5.2

      1994             69.9                1.9                  9.8

      1995            122.8                3.3                 10.9

      1996            203.0                5.4                 10.7

      1997            435.1               11.6                  6.4

      1998            948.2               25.2                  2.1

      1999            891.3               23.7                  0.8

      2000            977.0               26.0                  0.0
                  ---------              -----

      Total       $ 3,760.0              100.0%
                  =========              =====
----------------
(1) Claim activity is not spread evenly  throughout  the coverage  period of the
book  of  business.  Based  on  the  Company's  and  the  industry's  historical
experience,  claims  incidence is highest in the third through sixth years after
loan origination,  and relatively few claims are paid during the first two years
after  loan  origination.   Thus,  the  cumulative  loss  experience  of  recent
certificate years is not indicative of ultimate losses.







                                       24
<PAGE>

GEOGRAPHIC DISPERSION

     The following  tables reflect the percentage of direct risk in force on the
Company's  book of business (by location of property)  for the top ten statesand
the top ten metropolitan statistical areas ("MSAs") as of December 31, 2000:

                 Top Ten States                       Top Ten MSAs(1)
          ----------------------------   --------------------------------------
                           December 31                              December 31
                              2000                                      2000
                              ----                                      ----

         California           11.8%       Chicago, IL                    9.2%

         Illinois              9.6        Atlanta, GA                    3.6

         Florida               8.2        Los Angeles/Long Beach, CA     2.6

         Georgia               8.1        Phoenix/Mesa, AZ               2.3

         Texas                 7.6        Houston, TX                    2.1

         North Carolina        6.4        Charlotte, NC                  1.6

         Pennsylvania          4.1        Philadelphia, PA               1.5

         Virginia              4.0        Minneapolis/St. Paul, MN       1.4

         Colorado              3.7        Dallas, TX                     1.4

         Arizona               3.5        Denver, CO                     1.3
                              -----                                     -----
         Total                67.0%       Total                         27.0%
                              =====                                     =====
---------------------

(1)  Current  year  MSA  reporting  reflects  the  MSA/PMSA  designation.   This
designation,  which is  consistent  with  industry  standards,  reflects  a more
narrowly defined statistical area than has been reported in prior years.

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

INVESTMENT PORTFOLIO

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

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

                                       25
<PAGE>

rating  agency  (e.g.,"BBB-"  or  better  by S&P),  and (ii) at least 50% of its
investment  portfolio  (together  with cash  assets) to  consist  of cash,  cash
equivalents,  and securities  which, at the date of purchase,  were rated one of
the two highest investment grades by a nationally recognized rating agency.

     At December 31, 2000, the Company's total  investment  portfolio had a fair
market  value of $232.0  million and did not include any real estate or mortgage
loans. The investment portfolio was composed of approximately 88% fixed maturity
securities, 5% equities, and 7% short-term investments.

     Liquidity  is  sought  through  cash  equivalent  investments  and  through
diversification  and  investment  in  publicly  traded  securities.  The Company
attempts  to  maintain a level of  liquidity  and a duration  in its  investment
portfolio  consistent  with  its  business  outlook  and  the  expected  timing,
direction,  and degree of changes in interest rates. As of December 31, 2000, no
investment  in  the  securities  of any  single  issuer  (other  than  the  U.S.
government and its agencies) exceeded 2% of the Company's investment portfolio.

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

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

<TABLE>
<CAPTION>
                          INVESTMENT PORTFOLIO RESULTS

                                                2000            1999            1998            1997          1996
                                                ----            ----            ----            ----          ----

<S>                                         <C>             <C>             <C>             <C>            <C>
Average investments (1)................     $212,029,383    $183,987,661    $151,711,923    $103,804,750   $89,577,031

Pre-tax net investment income..........      $12,645,321     $10,545,663     $ 9,289,026     $ 6,234,142    $5,446,672

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

Tax-equivalent yield (2)...............             8.2%            7.7%            7.9%            8.0%          7.7%

Pre-tax realized gain (loss) on sale of
         Investments...................       $  285,849     $ 1,153,191      $  880,502      $   34,330    $ (162,385)
---------------------
<FN>
(1)  Based on historical cost adjusted for amortization and accretion of premium and discount.
(2)  Based on book value and the Company's marginal tax rate.
</FN>
</TABLE>

                                       26
<PAGE>


     The diversification of the Company's  investment  portfolio at December 31,
2000, is shown in the table below:

<TABLE>
<CAPTION>
                      INVESTMENT PORTFOLIO DIVERSIFICATION

                                                              December 31, 2000
                                             -------------------------------------------
                                             Amortized Cost   Fair Value       Percent (1)
                                             --------------   ----------       -------
<S>                                          <C>               <C>             <C>
 Available-for-sale securities:
   Fixed maturity securities:
      U. S. government obligations.......... $ 12,933,975     $ 13,238,313      5.7%

     Mortgage-backed bonds..................      933,215           981,245      0.4

     State and municipal bonds..............  139,926,385       143,721,798     61.9

     Corporate Bonds........................   47,986,616        45,983,296     19.8
                                             ------------      ------------
       Total fixed maturities...............  201,780,191       203,924,652

   Equity securities........................    9,630,441        11,088,525      4.8
                                             ------------      ------------
       Total available-for-sale securities..  211,410,632       215,013,177

   Short-term investments...................   17,012,080        17,012,080      7.4
                                             ------------      ------------    ------
                                             $228,422,712      $232,025,257    100.0%
                                             ============      ============    ======
----------------
<FN>
(1)  Percentage of fair value.
</FN>
</TABLE>

     The following table shows the scheduled maturities at December 31, 2000, of
the fixed maturity securities held in the Company's investment portfolio:

                     INVESTMENT PORTFOLIO SCHEDULED MATURITY

                                                 December 31, 2000
                                            ---------------------------
                                             Fair Value         Percent
                                              ----------        -------
 One year or less..........................   $3,864,589           1.9%

 After one year through five years.........   23,426,372          11.5

 After five years through ten years........   30,841,881          15.1

 After ten years though twenty years.......  103,899,668          50.9

 After twenty years........................   40,910,897          20.1

 Mortgage-backed securities (1)............      981,245           0.5
                                            ------------         ------
           Total........................... $203,924,652         100.0%
                                            ============         ======
---------------------
(1)Substantially  all of these  securities  are  guaranteed  by U.S.  Government
Agencies.

                                       27
<PAGE>


     The following table shows the ratings of the Company's investment portfolio
as of December 31, 2000:

                         Investment Portfolio by Rating


                                                           December 31, 2000
                                                   ----------------------------
 Rating(1)                                           Fair Value         Percent
                                                     ----------         -------
 Fixed maturities:

          U.S. Treasury and U.S. agency bonds....    $ 5,217,023         2.6%

          AAA....................................     79,443,654         39.0

          AA.....................................     27,253,100         13.4

          A......................................     51,479,757         25.1

          BBB....................................     23,359,844         11.5

          BB.....................................      8,000,251          3.9

          B......................................      5,418,940          2.7

          C......................................         57,000          0.0

          D......................................        168,983          0.1

          NR.....................................      3,526,100          1.7
                                                   -------------        ------

               Total fixed maturities............  $ 203,924,652        100.0%
                                                   =============        ======


 Equities:

          AAA....................................  $     483,125          4.3%

          AA.....................................              0          0.0

          A......................................      7,038,892         63.5

          BBB....................................        970,568          8.8

          BB.....................................              0          0.0

          B......................................      2,595,940         23.4
                                                   -------------        ------

                Total equities...................  $  11,088,525        100.0%
                                                   =============        ======

 Total Portfolio.................................  $ 215,013,177
                                                   =============
----------------
(1) Current ratings as assigned by the NRSRO (Nationally  Recognized Statistical
Rating  Organization).  The NRSRO includes the following  nationally  recognized
rating agencies: S&P, Moody's, and Fitch.

                                       28
<PAGE>


REGULATION

DIRECT REGULATION

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

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

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


                                       29
<PAGE>

     Triad is required by Illinois  insurance  laws to provide for a contingency
reserve in an amount equal to at least 50% of earned  premiums in its  statutory
financial statements.  Such reserves must be maintained for a period of 10 years
except  in  circumstances   where  high  levels  of  losses  exceed   regulatory
thresholds.  The contingency reserve,  designed to provide a cushion against the
effect of adverse economic cycles,  has the effect of reducing statutory surplus
and  restricting  dividends and other  distributions  by Triad.  At December 31,
2000,  Triad  had  statutory  policyholders'  surplus  of $101.0  million  and a
statutory contingency reserve of $150.8 million. At December 31, 1999, Triad had
statutory  policyholders'  surplus of $94.6 million and a statutory  contingency
reserve of $113.8 million. Triad's statutory earned surplus was $17.3 million at
year-end  2000 versus  $10.9  million at  year-end  1999,  reflecting  growth in
statutory  net income  greater  than the increase in the  statutory  contingency
reserve.

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

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

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

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

     Triad,  TGAC, and Triad Re are each subject to examination of their affairs
by the  insurance  departments  of every  state in which  they are  licensed  to
transact  business.  The  Illinois  Insurance  Director  and  Vermont  Insurance
Commissioner  periodically conduct financial examinations of insurance companies
domiciled in their states.  The most recent  examinations of Triad and TGAC were

                                       30
<PAGE>


issued by the Illinois Insurance Department on February 3, 2000, and covered the
period January 1, 1995,  through December 31, 1998. No material  recommendations
were made as a result of these examinations.

     A number of states  generally  limit the amount of insurance risk which may
be  written  by a  private  mortgage  insurer  to 25 times the  insurer's  total
policyholders'   surplus.   This   restriction   is   commonly   known   as  the
risk-to-capital requirement.

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

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

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

     As the dominant  purchasers and sellers of conventional  mortgage loans and
beneficiaries of private mortgage guaranty insurance, Freddie Mac and Fannie Mae
impose  requirements on private mortgage  insurers in order for such insurers to
be  eligible  to insure  loans  sold to such  agencies.  Freddie  Mac's  current
eligibility  requirements  impose  limitations  on the  type  of  risk  insured,
standards for geographic and customer  diversification  of risk,  procedures for
claims handling,  acceptable underwriting practices,  and financial requirements
which  generally   mirror  state  insurance   regulatory   requirements.   These
requirements are subject to change from time to time.  Freddie Mac most recently
modified  its  eligibility   guidelines  in  June  2000.  Fannie  Mae  also  has
eligibility requirements, although such requirements are not published. Triad is
an approved  mortgage  insurer for both Freddie Mac and Fannie Mae and meets all
eligibility  requirements.  There  can  be  no  assurance,  however,  that  such

                                       31
<PAGE>


requirements  will  not  change  or  that  Triad  will  continue  to  meet  such
requirements.  In  addition,  to the extent  Fannie Mae or Freddie  Mac  assumes
default  risk for itself  that  would  otherwise  be  insured,  changes  current
guarantee fee arrangements,  allows alternative credit  enhancements,  alters or
liberalizes  underwriting guidelines on low down payment mortgages it purchases,
or otherwise  changes its business  practices or processes  with respect to such
mortgages, private mortgage insurers may be affected.

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

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

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

                                       32
<PAGE>


     Various  lawsuits  filed in US district court in Augusta,  Georgia  against
each of the national mortgage  insurers assert that defendant  mortgage insurers
have violated RESPA guidelines by offering pool insurance,  captive reinsurance,
contract underwriting, and other services at preferential below market prices as
an illegal  inducement to persuade  lenders to use those  mortgage  insurers for
primary  insurance  coverage.  The  lawsuits  seek class  action  status.  Three
mortgage  insurers have entered into  preliminary  settlements  of the lawsuits.
Triad's  motion for  summary  judgement  has been  granted and is expected to be
appealed.  Triad  believes  that its products and services  comply with RESPA as
well as all other applicable laws and regulations. Management does not know what
the  outcome of the legal  proceedings  will be, or the  future  impact of these
lawsuits on the mortgage insurance industry.

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

     Upon request by an insured,  Triad must cancel the mortgage insurance for a
mortgage  loan.  Fannie  Mae and  Freddie  Mac  guidelines,  as well as  several
existing and proposed state  statutes,  contain  various  provisions  which give
borrowers the right to request cancellation of borrower-paid  mortgage insurance
when specified conditions are met.

     The Homeowners  Protection Act of 1998,  effective July 29, 1999,  provides
for certain termination and cancellation requirements for borrower-paid mortgage
insurance and requires  mortgage lenders to periodically  update borrowers about
their private mortgage insurance. Under the legislation, borrowers may generally
request  termination of mortgage  insurance  once the LTV reaches 80%,  provided
that certain  conditions are met. The legislation  further  requires  lenders to
automatically cancel  borrower-paid  private mortgage insurance when home equity
reaches 78% if certain conditions are met. The legislation also requires lenders
to notify  borrowers  that they have  private  mortgage  insurance  and requires
certain  disclosures  to borrowers  of their rights under the law.  Because most
mortgage  borrowers  who obtain  private  mortgage  insurance do not achieve 20%
equity in their homes before the homes are sold or the mortgages refinanced, the
Company does not expect to lose a  significant  amount of its insurance in force
due to the enactment of this legislation.


                                       33
<PAGE>


INDIRECT REGULATION

     The  Company,  Triad,  and  its  subsidiaries  are  also  indirectly,   but
significantly,  impacted by regulations  affecting purchasers of mortgage loans,
such as Freddie  Mac and Fannie  Mae,  and  regulations  affecting  governmental
insurers, such as the FHA and the Department of Veterans Affairs ("VA"), as well
as lenders.  Private  mortgage  insurers,  including Triad, are highly dependent
upon federal housing legislation and other laws and regulations which affect the
demand for private  mortgage  insurance and the housing  market  generally.  For
example,  housing  legislation  enacted in 1992  permits up to 100% of  borrower
closing  costs to be financed by loans  insured by FHA, a  significant  increase
from the  previous  57% limit.  Also,  in April  1994,  HUD  reduced the initial
premium  (payable at loan  origination)  for FHA  insurance  from 3.0% to 2.25%.
Effective  January 2001, the maximum  individual  loan amount that the FHA could
insure increased from $219,849 to $239,250.  The maximum  individual loan amount
the VA can insure  presently is $203,000.  The maximum loan amounts that the FHA
and VA can insure are subject to adjustment and may increase in the future.  Any
future  legislation  that increases the number of persons eligible for FHA or VA
mortgages could have an adverse effect on the Company's  ability to compete with
the FHA or VA.

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

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

     Fannie Mae and Freddie Mac each provide  their own  automated  underwriting
system to be used by  mortgage  originators  selling  mortgages  to them.  These
systems,  which are  provided  by Triad as a service to the  Company's  contract

                                       34
<PAGE>


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

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

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

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

EMPLOYEES

     As of December 31, 2000,  the Company  employed 179 persons.  Employees are
not covered by any collective  bargaining  agreement.  The Company considers its
employee relations to be satisfactory.

                                       35
<PAGE>


EXECUTIVE OFFICERS

The executive officers of the Company are as follows:

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

William T. Ratliff, III       Chairman of the Board of                       47
                              the Company and Triad

Darryl W. Thompson            President, Chief Executive                     60
                              Officer, and Director of the
                              Company and Triad

Ron D. Kessinger              Executive Vice President and                   46
                              Chief Financial Officer of the
                              Company and Triad

John H. Williams              Executive Vice President and                   53
                              Director of Triad

Henry B. Freeman              Senior Vice President of Triad                 51

Earl F. Wall                  Senior Vice President, Secretary,              43
                              and General Counsel of the
                              Company and Triad

Michael R. Oswalt             Senior Vice President, Controller,             39
                              Treasurer, and Principal Accounting
                              Officer of the Company and Triad












                                       36
<PAGE>


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

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

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

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

     HENRY B. FREEMAN has been Senior Vice President of Risk Management of Triad
since January 1999, and was a Vice  President from 1987 till 1999.  From 1981 to
1987, Mr. Freeman was employed by Home Guaranty Insurance Corporation,  where he
was  Vice  President  of  Underwriting  and  Claims  from  1982 to 1985 and Vice
President of Risk Management from 1985 to 1987.


                                       37
<PAGE>


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

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

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

ITEM 2.       PROPERTIES.
-------       -----------

     As  of  December  31,  2000,   the  Company  leases  office  space  in  its
Winston-Salem   headquarters  and  its  eleven   underwriting   offices  located
throughout the country comprising  approximately 45,000 square feet under leases
expiring  between  2001 and 2008 and which  require  annual  lease  payments  of
approximately $893,000 in 2001. With respect to all facilities, the Company has,
or believes it will be able to obtain, lease renewals on satisfactory terms. The
Company believes its existing  properties are well utilized and are suitable and
adequate for its present circumstances.

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

                                       38
<PAGE>



ITEM 3.       LEGAL PROCEEDINGS.
-------       ------------------

     The Company is involved in litigation  in the ordinary  course of business.
No pending  litigation  is  expected  to have a material  adverse  affect on the
financial position of the Company.

     Triad is a defendant in PATTON V. TRIAD.  This action was commenced on June
30,  2000 with the  filing of a  complaint  in  Federal  District  Court for the
Southern  District  of  Georgia  seeking  class  action  status  on  behalf of a
nationwide class of home mortgage  borrowers.  The complaint  alleges that Triad
violated the Real Estate  Settlement  Procedures  Act ("RESPA") by entering into
transactions with lenders (including  captive mortgage  reinsurance and contract
underwriting)  that were not  properly  priced,  in return for the  referral  of
mortgage insurance. The complaint seeks damages of three times the amount of the
mortgage  insurance  premiums  that  have been paid and that will be paid at the
time of judgement for the mortgage  insurance  that is found to be involved in a
violation  of RESPA.  The  complaint  also seeks  injunctive  relief,  including
prohibiting Triad from receiving future premium payments.  In August 2000, Triad
filed a motion for summary  judgement  in the case which was granted on February
13, 2001. This decision is expected to be appealed.  Six other mortgage insurers
are also defendants in equivalent lawsuits pending in the Federal District Court
for the Southern  District of Georgia.  While the ultimate  outcome of the RESPA
litigation  is  uncertain,  the  litigation  is not  expected to have a material
adverse affect on the financial position of the Company.

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

         None.
















                                       39
<PAGE>



                                     PART II

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

     The Company's  Common Stock trades on The Nasdaq Stock  Market(R) under the
symbol  "TGIC."  At  December  31,  2000,  13,351,694  shares  were  issued  and
outstanding.  The  following  table sets forth the  highest  and lowest  closing
prices of the  Company's  Common Stock,  $0.01 par value,  as reported by Nasdaq
during the periods indicated.



                                    2000                         1999
                                    ----                         ----

                             High           Low            High           Low
                            -----           ---            ----           ---

     First Quarter........  $22.625       $14.875        $22.750        $13.563

     Second Quarter.......  $23.438       $18.250        $18.063        $12.000

     Third Quarter........  $29.750       $21.500        $20.125        $16.625

     Fourth Quarter ......  $34.250       $26.250        $23.500        $16.438


     As of March 15,  2001,  the  number of  stockholders  of record of  Company
Common Stock was approximately  300. In addition,  there were an estimated 3,200
beneficial owners of shares held by brokers and fiduciaries.

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















                                       40
<PAGE>
Item 6.       Selected Financial Data
-------       -----------------------
<TABLE>
<CAPTION>
                                                                           Year Ended December 31
                                                   -----------------------------------------------------------------------
                                                         2000          1999          1998          1997           1996
                                                         ----          ----          ----          ----           ----
Income Statement Data (for period ended):                     (Dollars in thousands, except per share amounts)
<S>                                                 <C>           <C>           <C>           <C>            <C>
Premiums written:
     Direct..................................       $     76,867  $     65,381  $     52,974  $      40,083  $      26,152
     Assumed.....................................              8            11            13             20             26
     Ceded.......................................         (4,993)       (1,665)       (1,090)        (1,772)        (2,217)
                                                     -----------   -----------   -----------   ------------   ------------
                                                    $     71,882  $     63,727  $     51,897  $      38,331  $      23,961
                                                     ===========   ===========   ===========   ============   ============
Earned premiums..................................   $     71,843  $     63,970  $     52,822  $      38,522  $      24,727
Net investment income............................         12,645        10,546         9,289          6,234          5,447
Realized investments gains (losses)..............            286         1,153           880             34          (162)
Other income.....................................             37            13            14              8             --
                                                     -----------   -----------   -----------   ------------   ------------
     Total revenues..........................             84,811        75,682        63,005         44,798         30,012

Net losses and loss adjustment expenses..........          7,587         7,111         7,009          5,177          3,279
Interest expense on debt.........................          2,770         2,780         2,554             --             --
Amortization of deferred policy acquisition cost.          8,211         6,955         5,955          4,120          3,235
Other operating expenses (net of acquisition
        cost deferred)...........................         16,008        15,061        12,435         10,257          7,259
                                                     -----------   -----------   -----------   ------------   ------------
Income before income taxes.......................         50,235        43,775        35,052         25,244         16,239
Income taxes.....................................         15,237        13,365        10,678          8,002          5,042
                                                     -----------   -----------   -----------   ------------   ------------
Net income.......................................   $     34,998  $     30,410  $     24,374  $      17,242  $      11,197
                                                     ===========   ===========   ===========   ============   ============
     Basic earnings per share (1)................   $       2.63  $       2.28  $       1.83  $        1.30  $        0.84
     Diluted earnings per share (1)..............   $       2.55  $       2.23  $       1.76  $        1.26  $        0.83
                                                     -----------   -----------   -----------   ------------   ------------
Weighted average common and common share
     equivalents outstanding (1)
         Basic ..................................     13,321,901    13,312,104    13,342,749     13,291,160     13,277,853
         Diluted.................................     13,726,088    13,640,716    13,843,382     13,713,538     13,541,551
Balance Sheet Data (at year end):
     Total assets (2)............................   $    328,377  $    263,141  $    230,512  $     155,272  $     122,397
     Total invested assets.......................   $    232,025  $    191,564  $    177,301  $     119,877  $      98,027
     Losses and loss adjustment expenses.........   $     14,987  $     14,751  $     12,143  $       8,960  $       6,305
     Unearned premiums...........................   $      6,933  $      6,831  $      7,055  $       7,988  $       8,216
     Long-term debt .............................   $     34,467  $     34,462  $     34,457  $          --  $          --
     Stockholders' equity........................   $    199,831  $    157,072  $    137,531  $     111,781  $      91,680
Statutory Ratios (3):
     Loss ratio..................................          10.6%         11.1%         13.3%          14.2%          16.0%
     Expense ratio...............................          37.4%         40.5%         42.3%          42.5%          49.6%
                                                     -----------   -----------   -----------   ------------   ------------
     Combined ratio..............................          48.0%         51.6%         55.6%          56.7%          65.6%
                                                     ===========   ===========   ===========   ============   ============
GAAP Ratios:
     Loss ratio..................................          10.6%         11.1%         13.3%          13.4%          13.3%
     Expense ratio...............................          33.7%         34.5%         35.4%          37.5%          43.8%
                                                     -----------   -----------   -----------   ------------   ------------
     Combined ratio..............................          44.3%         45.6%         48.7%          50.9%          57.1%
                                                     ===========   ===========   ===========   ============   ============
Other Statutory Data (dollars in millions) (3):
     Direct insurance in force...................   $   15,123.5  $   13,038.0  $   11,256.6  $     9,176.7  $     6,556.3
     Direct risk in force (gross)................   $    3,760.0  $    3,222.5  $    2,777.4  $     2,231.4  $     1,515.4
     Risk-to-capital.............................         14.8:1        15.4:1        16.2:1         19.3:1         15.8:1
<FN>
(1) Periods have been restated to reflect the two-for-one stock split on October 28, 1997.
(2)  Periods   prior  to  1999  have  been   restated  to  reflect reclassification  of Tax and  Loss  bonds.
(3)  Based on  statutory  accounting practices and derived from consolidated statutory financial statements of Triad.
</FN>
</TABLE>
                                       41
<PAGE>

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

RESULTS OF OPERATIONS

2000 COMPARED TO 1999

     Net income for 2000  increased  15.1% to $35.0  million  compared  to $30.4
million in 1999. This improvement is attributable  primarily to a 12.3% increase
in earned premiums,  a 19.9% increase in net investment  income, and an improved
combined loss and expense ratio for all of 2000.

     Net income per share on a diluted basis  increased  14.4% to $2.55 for 2000
compared  to $2.23 per share for 1999.  Included in 2000  earnings  per share is
$0.01 per share of net realized  investment gains compared to $0.06 per share in
1999. Operating earnings per share, which exclude net realized investment gains,
were $2.54 for 2000 compared to $2.17 for 1999, an increase of 16.6%.

     Net new  insurance  written was $4.4  billion for 2000,  a decrease of less
than 1% from 1999 levels.  For the fourth  quarter,  net new  insurance  written
increased 49.7% to $1.3 billion in 2000 compared to $892 million in 1999.  Triad
achieved this level of new insurance written during a year in which industry new
insurance written decreased 13.6%, although this decline moderated substantially
in the third and fourth quarters.  For 2000, new insurance written was driven by
expanded  relationships  with  national  lenders as well as  innovative  product
offerings.  According to industry  data,  Triad's  national  market share of new
insurance written increased to 2.7% for all of 2000 (3.1% in the fourth quarter)
from 2.3% for all of 1999. Total direct insurance in force reached $15.1 billion
at December  31,  2000,  compared  to $13.0  billion at December  31,  1999,  an
increase of 16.0%.

     Total direct  premiums  written were $76.9 million for 2000, an increase of
17.6%  compared to $65.4  million for 1999.  Net premiums  written  increased by
12.8% to $71.9  million  in 2000  compared  to $63.7  million  for 1999.  Earned
premiums  increased 12.3% to $71.8 million for 2000 from $64.0 million for 1999.
This  growth in written  and earned  premium  resulted  from both new  insurance
production in 2000 and an improvement in the Company's  persistency.  The growth
in direct premiums  written was offset somewhat by the increase in ceded premium
written.  Driven primarily by increases in risk-sharing  arrangements and excess
of loss  reinsurance,  ceded  premium  written for 2000  increased  200% to $5.0
million compared to $1.7 million in 1999.  Approximately  42.9% of new insurance
written  in 2000  was  subject  to  captive  mortgage  reinsurance  and  similar
arrangements  compared to 22.9% in 1999.  Management  anticipates ceded premiums
will continue to increase as a result of the expected  increase in  risk-sharing
programs.

                                       42
<PAGE>

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


     Refinance activity was 13.2% (15.2% in the fourth quarter) of new insurance
written  in 2000  compared  to 25.0%  (11.5%  in the  fourth  quarter)  in 1999,
reflecting  the continued rise in interest rates through the first six months of
the year.  Persistency,  or the  amount of  insurance  in force  remaining  from
one-year  prior,  was 82.6% at December 31, 2000,  compared to 77.1% at December
31, 1999.

     Net  investment  income for 2000 was $12.6  million,  a 19.9% increase over
$10.5  million in 1999.  This  increase  in  investment  income is the result of
growth in the average book value of invested  assets by $28.0  million to $212.0
million for the year ended December 31, 2000,  from $184.0 million for 1999. The
growth in invested  assets is  attributable  to normal  operating cash flow. The
pre-tax yield on average  invested assets increased to 6.0% for 2000 as compared
to 5.7% for all of 1999. The portfolio's  tax-equivalent yield was 8.2% for 2000
versus 7.7% for 1999. Approximately 69% or $139.9 million of the Company's fixed
maturity  portfolio at December 31,  2000,  was composed of state and  municipal
tax-preferred  securities as compared to approximately  71% or $124.4 million at
December 31, 1999.

     The Company realized net investment gains of approximately  $290,000 during
2000  compared  to $1.2  million in 1999.  For the fourth  quarter of 2000,  the
Company realized net investment losses of approximately $1.4 million, which were
primarily attributable to a repositioning of the fixed maturity portfolio.

     Net losses and loss  adjustment  expenses (net of  reinsurance  recoveries)
increased by 6.7% in 2000 to $7.6 million compared to $7.1 million in 1999. This
increase reflects the growing amount of the Company's insurance in force and the
resulting  recognition  of a greater  amount of insurance in force  reaching its
highest claim frequency years.

     The  Company's  loss  ratio  (the  ratio of net  incurred  losses to earned
premiums)  was 10.6% for 2000  compared  to 11.1% for 1999.  The loss  ratio was
10.6% for the fourth  quarter of 2000 compared to 7.8% for the fourth quarter of
1999. The Company's favorable loss ratio reflects the low level of delinquencies
compared to the number of insured loans and the fact that approximately 75% (79%
at year-end 1999) of the Company's insurance in force was originated in the last
36 months.  Management  believes,  based upon its  experience and industry data,
that claims  incidence for it and other private  mortgage  insurers is generally
highest in the third  through sixth years after loan  origination.  Although the
claims  experience  on new  insurance  written in previous  years has been quite
favorable,  the Company  does not expect its loss ratio to remain at its current
low  level  and  expects  incurred  losses to  increase  as a greater  amount of
insurance in force reaches its anticipated highest claim frequency years. Due to
the inherent uncertainty of future premium levels, losses,  economic conditions,
and other  factors that affect  earnings,  it is  impossible to predict with any
degree of  certainty  the  impact of such  higher  claim  frequencies  on future
earnings.


                                       43
<PAGE>
ITEM 7.           MANAGEMENT'S DISCUSSION AND ANALYSIS OF
-------           FINANCIAL CONDITION AND RESULTS OF OPERATION - - CONTINUED
                  ----------------------------------------------------------

     Amortization  of deferred  policy  acquisition  costs increased by 18.1% to
$8.2  million  in 2000  compared  to $7.0  million  for 1999.  The  increase  in
amortization  reflects a growing balance of deferred policy acquisition costs to
amortize as the Company builds its total insurance in force.

     Other operating  expenses increased 6.3% to $16.0 million for 2000 compared
to $15.1  million  for the same  period in 1999.  This  increase  in expenses is
primarily attributable to advertising,  personnel,  and facilities and equipment
costs  required  to  support  the  Company's  product  development,   technology
enhancements,   geographic  expansion,  and  production.   Amortization  of  the
company's policy  administration  system began in December of 2000 and accounted
for  approximately  $129,000 of other operating  expenses.  Amortization of this
system is expected to contribute  approximately  $1.5 million to other operating
expenses in 2001.

     The expense ratio (ratio of underwriting  expenses to net premiums written)
for 2000 was 33.7% compared to 34.5% for 1999.  Contributing to this improvement
is the higher level of written premiums in 2000 partially offset by the increase
in expenses.

     The  effective tax rate for 2000 was 30.3%  compared to 30.5% in 1999.  For
the fourth quarter of 2000,  the effective tax rate was 29.6%.  The lower fourth
quarter rate was primarily the result of a higher  percentage of pre-tax  income
being generated from tax-preferred securities.  Management expects the Company's
effective  tax rate to remain at about  the same  annual  rate as long as yields
from new funds invested in tax-preferred securities remain favorable in relation
to fully taxable securities.

1999 COMPARED TO 1998

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

     Net income per share on a diluted basis  increased  26.6% to $2.23 for 1999
compared  to $1.76 per share for 1998.  Included in 1999  earnings  per share is
$0.06 per share of net realized  investment gains compared to $0.04 per share in
1998. Operating earnings per share, which exclude net realized investment gains,
were $2.17 for 1999 compared to $1.72 for 1998, an increase of 26.5%.

     Net new  insurance  written  was $4.4  billion for 1999 as compared to $4.8
billion for 1998, a decrease of 7.8%. For the fourth quarter,  net new insurance
written  decreased  41.5% in 1999 to $892 million as compared to $1.5 billion in


                                       44
<PAGE>

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


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

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

     Refinance activity was 25.0% (11.5% in the fourth quarter) of new insurance
written  in 1999  compared  to 31.7%  (34.3%  in the  fourth  quarter)  in 1998,
reflecting  the rise in  interest  rates  during the year.  Persistency,  or the
amount  of  insurance  in force  remaining  from  one-year  prior,  was 77.1% at
December 31, 1999, compared to 70.0% at December 31, 1998.

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

         Net losses and loss adjustment expenses (net of reinsurance recoveries)
increased by 1.5% in 1999 to $7.1 million compared to $7.0 million in 1998. This

                                       45

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

increase  reflected the growing  amount of the Company's  insurance in force and
the resulting recognition of a greater amount of insurance in force reaching its
highest claim frequency years.

     The  Company's  loss  ratio  (the  ratio of net  incurred  losses to earned
premiums) was 11.1% for 1999 compared to 13.3% for 1998. The loss ratio was 7.8%
for the fourth quarter of 1999 compared to 18.6% for the fourth quarter of 1998.
The Company's  favorable  loss ratio  reflected  the low level of  delinquencies
compared to the number of insured loans and the fact that approximately 79% (78%
at year-end 1998) of the Company's insurance in force was originated in the last
36 months.

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

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

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

     The effective  tax rate for 1999 and 1998 was 30.5%.  This  effective  rate
reflected the Company's continued investments in tax-preferred securities.

LIQUIDITY AND CAPITAL RESOURCES

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

     The Company generated positive cash flow from operating activities for 2000
of $32.7 million  compared to $30.8 million for 1999.  The increase in operating
cash flow  reflects the growth in  insurance  written,  insurance in force,  and
Triad's  investment  portfolio,  partially offset by the increase in paid claims
and other operating expenses.

     The  Company's  business  does not routinely  require  significant  capital
expenditures   other  than  for   enhancements  to  its  computer   systems  and
technological  capabilities.  Positive  cash flows are invested  pending  future
payments of claims and expenses.  Cash flow shortfalls,  if any, could be funded
through  sales  of  short-term   investments  and  other  investment   portfolio
securities.

                                       46

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

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

     Consolidated  invested  assets were $232.0  million at December  31,  2000,
compared to $191.6 million at December 31, 1999.  Fixed maturity  securities and
equity securities classified as available-for-sale totaled $215.0 million at the
end of 2000.  Net  unrealized  investment  gains  were  $1.5  million  on equity
securities and $2.1 million on fixed  maturity  securities at December 31, 2000.
The  fixed  maturity   portfolio   consisted  of  approximately   69%  municipal
securities,  24% corporate securities,  6% U.S. government  obligations,  and 1%
mortgage-backed bonds at December 31, 2000.

     Fixed  maturity  securities  represent  approximately  88% of the Company's
invested  assets at December  31,  2000,  and the fair value of these fixed rate
securities  generally  bears an inverse  relationship  to changes in  prevailing
market  interest rates.  The Company's  long-term debt bears interest at a fixed
rate of 7.9%  per  annum,  and as a  result,  the  fair  value  of this  debt is
sensitive to changes in prevailing  interest  rates. A 10% relative  increase or
decrease  in  market   interest  rates  that  affect  the  Company's   financial
instruments  would not have a material impact on earnings during the next fiscal
year, and would not materially affect the fair value of the Company's  financial
instruments.

     In December  2000,  the Company  completed  the initial phase of its policy
management  system  conversion and began  amortization of the system asset.  The
Company incurred  approximately $7.7 million for this phase of its policy system
conversion  and upgrade,  and the Company has funded this  project  through cash
flow  from  operations.  This  new  system  will be  amortized  over 60  months.
Amortization on the system began in December of 2000.

     The  Company's  loss  reserves  increased to $15.0  million at December 31,
2000,  compared to $14.8 million at December 31, 1999. This growth is the result
of the increases in new insurance written and the maturing of the Company's risk
in force.  Consistent  with industry  practices,  the Company does not establish
loss  reserves  for future  claims on insured  loans that are not  currently  in
default. The Company's reserves per delinquent loan were $20,300 at December 31,
2000, compared to $21,400 at December 31, 1999. The Company's delinquency ratio,
the ratio of  delinquent  insured  loans to total  insured  loans,  was 0.60% at
December 31, 2000, compared to 0.64% at December 31, 1999.

                                       47
<PAGE>

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

     Total  stockholders'  equity  increased  to $199.8  million at December 31,
2000, from $157.1 million at December 31, 1999. This increase resulted primarily
from net income of $35.0  million and net  unrealized  gains on invested  assets
classified as available-for-sale of $7.1 million (net of income tax).

     Triad's total statutory  policyholders' surplus increased to $101.0 million
at December 31, 2000,  from $94.6  million at December 31, 1999.  This  increase
resulted  primarily  from  statutory  net  income  of $47.8  million,  offset by
increases  in  the  statutory  contingency  reserve  of  $36.9  million  and  in
non-admitted assets of $3.9 million.  Triad's statutory earned surplus was $17.3
million at December  31, 2000,  compared to $10.9  million at December 31, 1999,
reflecting,  primarily, growth in statutory net income greater than the increase
in the statutory contingency reserve. Approximately $540,000 and $1.0 million of
the  statutory  earned  surplus for December  31,  2000,  and December 31, 1999,
respectively, was attributable to unrealized gains. The balance in the statutory
contingency  reserve was $150.8 million at December 31, 2000, compared to $113.8
million at December 31, 1999.

     Triad's  ability  to write  insurance  depends  on the  maintenance  of its
claims-paying  ability  ratings  and the  adequacy of its capital in relation to
risk in force. A significant  reduction of capital or a significant  increase in
risk may impair  Triad's  ability  to write  additional  insurance.  A number of
states also  generally  limit Triad's  risk-to-capital  ratio to 25-to-1.  As of
December 31, 2000,  Triad's  risk-to-capital  ratio was 14.8-to-1 as compared to
15.4-to-1  at December 31, 1999,  and  13.5-to-1  for the industry as a whole at
December 31, 1999, the latest industry data available.














                                       48
<PAGE>

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


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

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






                                       49
<PAGE>


ITEM 8.       FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
-------       --------------------------------------------

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


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

         None.


                                    PART III

ITEM 10.      DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
--------      ---------------------------------------------------

     Information  regarding  directors and nominees for directors of the Company
is included in the  Company's  Proxy  Statement  for the 2001 Annual  Meeting of
Stockholders, and is hereby incorporated by reference.

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

ITEM 11.      EXECUTIVE COMPENSATION.
--------      -----------------------

     This  information is included in the Company's Proxy Statement for the 2001
Annual Meeting of Stockholders, and is hereby incorporated by reference.


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

     This  information is included in the Company's Proxy Statement for the 2001
Annual Meeting of Stockholders, and is hereby incorporated by reference.


ITEM 13.      CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
--------      -----------------------------------------------

     This  information is included in the Company's Proxy Statement for the 2001
Annual Meeting of Stockholders, and is hereby incorporated by reference.



                                       50
<PAGE>



                                     PART IV


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

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

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

         (b) Reports on Form 8-K.

                 No  reports on form 8-K were filed  during  the  quarter  ended
                 December 31, 2000.

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

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




















                                       51
<PAGE>



                                   SIGNATURES

     Pursuant  to the  requirements  of  Section  13 or 15(d) of the  Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the  undersigned,  thereunto  duly  authorized  on the 21st day of
March, 2001.

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

     Pursuant to the  requirements of the Securities  Exchange Act of 1934, this
report has been  signed  below on the 21st day of March,  2001 by the  following
persons on behalf of the Registrant in the capacities indicated.

          SIGNATURE                          TITLE



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


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


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


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


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


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


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



                                       52
<PAGE>



                           ANNUAL REPORT ON FORM 10-K

                ITEM 8, ITEM 14(a)(1) and (2), (3), (c), and (d)

            INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULES

                                INDEX TO EXHIBITS


                        CONSOLIDATED FINANCIAL STATEMENTS

                          FINANCIAL STATEMENT SCHEDULES

                                CERTAIN EXHIBITS

                          YEAR ENDED DECEMBER 31, 2000

                               TRIAD GUARANTY INC.

                          WINSTON-SALEM, NORTH CAROLINA











                                       53
<PAGE>



                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
                        AND FINANCIAL STATEMENT SCHEDULES

                              (Item 14(a) 1 and 2)



 CONSOLIDATED FINANCIAL STATEMENTS                                      Page
 ---------------------------------                                      ----

 Report of Independent Auditors.....................................       57

 Consolidated Balance Sheets at December 31, 2000 and 1999..........     58 - 59

 Consolidated Statements of Income for each of the three years
    in the period ended December 31, 2000...........................       60

 Consolidated Statements of Changes in Stockholders' Equity for
    each of the three years in the period ended December 31, 2000...       61

 Consolidated Statements of Cash Flows for each of the three
    years in the period ended December 31, 2000.....................       62

 Notes to Consolidated Financial Statements.........................     63 - 80


FINANCIAL STATEMENT SCHEDULES
-----------------------------

Schedules  at and for each of the three years in the period  ended  December 31,
2000


    Schedule I - Summary of Investments - Other Than
       Investments in Related Parties...............................       81

    Schedule II - Condensed Financial Information of Registrant.....     82 - 86

    Schedule IV - Reinsurance.......................................       87

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




                                       54
<PAGE>


                                Index To Exhibits
                                 (Item 14(a) 3)


EXHIBIT
NUMBER      DESCRIPTION OF EXHIBIT
------      ----------------------

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

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

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

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

   10.1     1993 Long-Term Stock Incentive Plan (1)(3) (Exhibit 10(a))

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

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

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

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

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

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

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

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




                                       55
<PAGE>


   10.17    Amendment to Employment Agreement between the Registrant and
            Darryl W. Thompson (3)(4) (Exhibit 10.17)

   10.18    Amendment to Employment Agreement between the Registrant and
            John H. Williams (3)(4) (Exhibit 10.18)

   10.19    Amendment to Employment Agreement between the Registrant and
            Henry B. Freeman (3)(4) (Exhibit 10.19)

   10.20    Amendment to Employment Agreement between the Registrant and
            Ron D. Kessinger (3)(4) (Exhibit 10.20)

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

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

   21.1     Subsidiaries of the Registrant (7) (Exhibit 21.1)

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

 * 27.1     Financial Data Schedule (Exhibit 27.1)

-----------------
*        Filed Herewith.


(1)  Incorporated by reference to the exhibit  identified in parentheses,  filed
     as an exhibit in the Registrant's  Registration Statement on Form S-1 filed
     October 22, 1993 and amendments thereto.

(2)  Incorporated by reference to the exhibit  identified in parentheses,  filed
     as an exhibit in the 1993 Form 10-K.

(3)  Denotes management contract or compensatory plan of arrangement required to
     be filed as an exhibit to this report  pursuant  to Item 601 of  Regulation
     S-K.

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

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

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

(7)  Incorporated by reference to the exhibit  identified in parentheses,  filed
     as an exhibit in the 1999 Form 10-K.








                                       56
<PAGE>

                         REPORT OF INDEPENDENT AUDITORS


Board of Directors
Triad Guaranty Inc.


We have audited the accompanying  consolidated  balance sheets of Triad Guaranty
Inc.  and  subsidiaries  as of  December  31,  2000 and  1999,  and the  related
consolidated  statements of income,  changes in stockholders'  equity,  and cash
flows for each of the three years in the period ended  December 31, 2000.  These
financial  statements are the  responsibility of the Company's  management.  Our
responsibility  is to express an opinion on these financial  statements based on
our audits.

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

In our opinion,  the financial  statements  referred to above present fairly, in
all material  respects,  the consolidated  financial  position of Triad Guaranty
Inc.  and  subsidiaries  at  December  31, 2000 and 1999,  and the  consolidated
results of their  operations and their cash flows for each of the three years in
the period ended  December 31, 2000, in conformity  with  accounting  principles
generally accepted in the United States.

                                               /s/ERNST & YOUNG LLP

Winston-Salem, North Carolina
January 17, 2001


                                       57
<PAGE>


<TABLE>
<CAPTION>

                               Triad Guaranty Inc.

                           Consolidated Balance Sheets


                                                                   December 31
                                                            2000                1999
                                                       -----------------------------------
<S>                                                    <C>                 <C>
Assets
Invested assets:
   Securities  available-for-sale,  at fair value:
     Fixed maturities  (amortized
      cost: 2000-$201,780,191;
         1999-$173,978,864)                            $    203,924,652    $   164,579,416
     Equity securities (cost: 2000-$9,630,441;
       1999-$10,952,390)                                     11,088,525         13,075,648
   Short-term investments                                    17,012,080         13,908,666
                                                       -----------------------------------
                                                            232,025,257        191,563,730

Cash                                                          1,512,578            215,553
Real estate                                                      99,482            145,515
Accrued investment income                                     2,896,977          2,591,612
Deferred policy acquisition costs                            22,815,422         19,906,877
Property and equipment, at cost less accumulated
   depreciation (2000-$3,867,336; 1999-$3,009,638)            9,234,757          5,915,262
Prepaid federal income tax                                   49,374,666         35,415,666
Reinsurance recoverable                                           5,587             29,980
Other assets                                                 10,411,877          7,356,357










                                                       -----------------------------------
Total assets                                           $    328,376,603    $   263,140,552
                                                       ===================================
</TABLE>

                                       58
<PAGE>





<TABLE>
<CAPTION>



                                                                  December 31
                                                            2000                1999
                                                       ------------------------------------
<S>                                                    <C>                 <C>
Liabilities and stockholders' equity
Liabilities:
   Losses and loss adjustment expenses                 $     14,986,988    $    14,751,348
   Unearned premiums                                          6,933,259          6,831,290
   Amounts payable to reinsurer                               1,288,712            319,294
   Current taxes payable                                         85,062             70,272
   Deferred income taxes                                     60,651,647         41,750,341
   Unearned ceding commission                                 1,481,691            400,521
   Long-term debt                                            34,467,285         34,461,979
   Accrued interest on debt                                   1,274,972          1,274,972
   Accrued expenses and other liabilities                     7,375,503          6,208,079
                                                       -----------------------------------
Total liabilities                                           128,545,119        106,068,096

Commitments and contingencies (Note 5 and 7)

Stockholders' equity:
   Preferred stock, par value $.01 per share -
     authorized 1,000,000 shares, no shares
     issued and outstanding                                          -                  -
   Common stock, par value $.01 per share -
     authorized 32,000,000 shares, issued and
     outstanding 13,351,694 shares at December 31,
     2000 and 13,303,194 at December 31, 1999
                                                                133,517            133,032
   Additional paid-in capital                                62,723,667         61,972,312
   Accumulated other comprehensive income, net of
     income tax liability of $1,262,863 at
     December 31, 2000 and income tax
     asset of $2,546,666 at December 31, 1999                 2,351,065         (4,723,775)
   Deferred compensation                                       (135,041)           (69,414)
   Retained earnings                                        134,758,276         99,760,301
                                                       -----------------------------------
Total stockholders' equity                                  199,831,484        157,072,456
                                                       -----------------------------------
Total liabilities and stockholders' equity             $    328,376,603    $   263,140,552
                                                       ===================================
</TABLE>


See accompanying notes.

                                       59
<PAGE>

<TABLE>
<CAPTION>
                               Triad Guaranty Inc.

                        Consolidated Statements of Income


                                                        Year ended December 31
                                                  2000             1999             1998
                                           -------------------------------------------------
<S>                                        <C>                  <C>              <C>
Revenue:
   Premiums written:
     Direct                                $   76,867,728       $65,380,631      $52,973,589
     Assumed                                        7,776            11,377           13,052
     Ceded                                     (4,993,059)       (1,665,179)      (1,089,955)
                                           -------------------------------------------------
   Net premiums written                        71,882,445        63,726,829       51,896,686
   Change in unearned premiums                    (39,355)          242,971          925,045
                                           -------------------------------------------------
Earned premiums                                71,843,090        63,969,800       52,821,731

Net investment income                          12,645,321        10,545,663        9,289,026
Net realized investment gains                     285,849         1,153,191          880,502
Other income                                       36,785            13,039           13,652
                                           -------------------------------------------------
                                               84,811,045        75,681,693       63,004,911

Losses and expenses:
   Losses and loss adjustment expenses          7,562,228         7,121,002        7,005,420
   Reinsurance recoveries                          25,009            (9,686)           3,198
                                           -------------------------------------------------
Net losses and loss adjustment expenses         7,587,237         7,111,316        7,008,618

Interest expense on debt                        2,770,307         2,779,915        2,554,126
Amortization of deferred policy
   acquisition costs                            8,210,776         6,955,273        5,954,915
Other operating expenses (net of
   acquisition costs deferred)                 16,008,210        15,060,376       12,434,890
                                           -------------------------------------------------
                                               34,576,530        31,906,880       27,952,549
                                           -------------------------------------------------
 Income before income taxes                    50,234,515        43,774,813       35,052,362

Income taxes:
   Current                                         14,996            24,166           38,928
   Deferred                                    15,221,544        13,340,340       10,639,361
                                           -------------------------------------------------
                                               15,236,540        13,364,506       10,678,289
                                           -------------------------------------------------
Net income                                 $   34,997,975       $30,410,307      $24,374,073
                                           =================================================

Earnings per common and common
    equivalent share:
     Basic                                 $         2.63  $           2.28 $           1.83
     Diluted                               $         2.55  $           2.23 $           1.76
                                           =================================================
Shares used in computing earnings per
    common and common equivalent share:
     Basic                                     13,321,901        13,312,104       13,342,749
     Diluted                                   13,726,088        13,640,716       13,843,382
                                           =================================================
</TABLE>

See accompanying notes.

                                       60
<PAGE>

<TABLE>
<CAPTION>
                               Triad Guaranty Inc.
           Consolidated Statements of Changes in Stockholders' Equity

                                                                       Accumulated
                                                      Additional         Other
                                           Common       Paid-In      Comprehensive     Deferred        Retained
                                            Stock       Capital          Income      Compensation      Earnings        Total
                                         --------------------------------------------------------------------------------------
<S>                                      <C>        <C>            <C>               <C>          <C>             <C>
Balance at December 31, 1997             $ 132,937  $  59,369,223  $    4,405,315    $        -   $   47,873,316  $ 111,780,791
  Net income                                     -              -               -             -       24,374,073     24,374,073
  Other comprehensive income - net of
    tax:
    Change in unrealized gain                    -              -        (497,395)            -                -       (497,395)
                                                                                                                  -------------
  Comprehensive income                                                                                               23,876,678
  Issuance of 122,648 shares of common
    stock under stock option plans
                                             1,227        954,629               -             -                -        955,856
  Tax effect of exercise of
    non-qualified stock options                  -        916,711               -             -                -        916,711
  Purchase and subsequent retirement of
    15,000 shares of common stock             (150)             -               -             -         (296,671)      (296,821)
  Issuance of 7,500 shares of
    restricted stock                            75        298,050               -             -                -        298,125
                                         --------------------------------------------------------------------------------------
Balance at December 31, 1998               134,089     61,538,613       3,907,920             -       71,950,718    137,531,340
  Net income                                     -              -               -             -       30,410,307     30,410,307
  Other comprehensive income - net of
    tax:
    Change in unrealized gain                    -              -      (8,631,695)            -                -     (8,631,695)
                                                                                                                  -------------
  Comprehensive income                                                                                               21,778,612
  Issuance of 34,500 shares of common
    stock under stock option plans             345        199,928               -             -                -        200,273
  Tax effect of exercise of
    non-qualified stock options                  -        129,706               -             -                -        129,706
  Purchase and subsequent retirement of
    146,000 shares of common stock          (1,460)             -               -             -       (2,600,724)    (2,602,184)
  Issuance of 5,825 shares of
    restricted stock                            58        104,065               -      (104,123)               -              -
  Amortization of deferred
    compensation                                 -              -               -        34,709                -         34,709
                                         --------------------------------------------------------------------------------------
Balance at December 31, 1999               133,032     61,972,312      (4,723,775)      (69,414)      99,760,301    157,072,456
  Net income                                     -              -               -             -       34,997,975     34,997,975
  Other comprehensive income - net of
    tax:
    Change in unrealized gain                    -              -       7,074,840             -                -      7,074,840
                                                                                                                  -------------
  Comprehensive income                                                                                               42,072,815
  Issuance of 41,500 shares of common
    stock under stock option plans             415        471,157               -             -                -        471,572
  Tax effect of exercise of
    non-qualified stock options                  -        129,768               -             -                -        129,768
  Issuance of 7,000 shares of
    restricted stock                            70        150,430               -      (150,500)               -              -
  Amortization of deferred
    compensation                                 -              -               -        84,873                -         84,873
                                         --------------------------------------------------------------------------------------
Balance at December 31, 2000             $ 133,517  $  62,723,667  $    2,351,065    $ (135,041)  $  134,758,276  $ 199,831,484
                                         ======================================================================================
</TABLE>
See accompanying notes.

                                       61
<PAGE>

<TABLE>
<CAPTION>
                               Triad Guaranty Inc.

                      Consolidated Statements of Cash Flows

                                                                 Year ended December 31
                                                            2000          1999            1998
                                                      --------------------------------------------
<S>                                                   <C>             <C>             <C>
OPERATING ACTIVITIES
Net income                                            $ 34,997,975    $ 30,410,307    $ 24,374,073
Adjustments to reconcile net income to net
   cash provided by operating activities:
     Loss and unearned premium reserves                    337,609       2,384,911       2,248,974
     Accrued expenses and other liabilities              1,167,424       2,033,465       1,450,310
     Current taxes payable                                  14,790          24,485          42,469
     Amounts due to/from reinsurer                         931,198         875,266        (547,469)
     Accrued investment income                            (305,365)       (332,734)       (798,710)
     Policy acquisition costs deferred                 (11,119,321)    (10,846,591)     (9,383,119)
     Amortization of policy acquisition costs            8,210,776       6,955,273       5,954,915
     Net realized investment gains                        (285,849)     (1,153,191)       (880,502)
     Provision for depreciation                            859,879         720,456         750,097
     Accretion of discount on investments               (1,577,713)     (1,046,470)     (1,013,820)
     Deferred income taxes                              15,221,544      13,340,340      10,557,543
     Prepaid federal income taxes                      (13,959,000)    (10,159,000)     (8,964,000)
     Unearned ceding commission                          1,081,170        (220,640)        621,161
     Accrued interest on debt                                    -               -       1,274,972
     Other assets                                       (2,992,907)     (2,158,206)     (2,559,112)
     Other operating activities                            136,214         (50,215)        192,489
                                                      --------------------------------------------
Net cash provided by operating activities               32,718,424      30,777,456      23,320,271

INVESTING ACTIVITIES
 Securities available-for-sale:
      Purchases - fixed maturities                     (51,835,382)    (45,489,517)    (74,664,883)
      Sales  - fixed maturities                         23,279,996      26,280,714      17,449,277
      Purchases - equities                              (1,663,169)     (3,216,099)     (7,507,782)
      Sales - equities                                   5,608,372       5,035,504       5,591,607
Purchases of property and equipment                     (4,179,374)     (3,191,320)     (1,665,430)
                                                      ---------------------------------------------
Net cash used in investing activities                  (28,789,557)    (20,580,718)    (60,797,211)

Financing activities
Proceeds from issuance of long-term debt                         -               -      34,452,898
Retirement of common stock                                       -      (2,602,184)       (296,821)
Proceeds from exercise of stock options                    471,572         200,273         955,856
                                                      --------------------------------------------
Net change in financing activities                         471,572      (2,401,911)     35,111,933
Net change in cash and short-term investments            4,400,439       7,794,827      (2,365,007)
Cash and short-term investments at beginning of year    14,124,219       6,329,392       8,694,399
                                                      --------------------------------------------

Cash and short-term investments at end of year        $ 18,524,658    $ 14,124,219    $  6,329,392
                                                      ============================================

SUPPLEMENTAL SCHEDULE OF CASH FLOW INFORMATION
Cash paid during the period for:
  Income taxes and United States Mortgage
     Guaranty Tax and Loss Bonds                      $ 13,959,208    $ 10,158,677    $  8,963,726
  Interest                                               2,765,000       2,775,017       1,274,972
Non-cash investing and finance activities:
  Exchange of restricted common stock for
     intangible assets                                           -               -         298,125
</TABLE>

See accompanying notes.

                                       62
<PAGE>

                               Triad Guaranty Inc.

                   Notes to Consolidated Financial Statements

                                December 31, 2000


1. ACCOUNTING POLICIES

NATURE OF BUSINESS

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

BASIS OF PRESENTATION

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

CONSOLIDATION

The consolidated financial statements include the amounts of Triad Guaranty Inc.
and its wholly-owned subsidiary, Triad Guaranty Insurance Corporation ("Triad"),
and Triad's  wholly-owned  subsidiaries  Triad  Guaranty  Assurance  Corporation
("TGAC") and Triad Re Insurance  Corporation ("Triad Re"). Triad Re, a sponsored
captive  reinsurance  company,  is domiciled in Vermont and began  operations in
2000.  All  significant   intercompany   accounts  and  transactions  have  been
eliminated.

USE OF ESTIMATES

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

INVESTMENTS

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

                                       63
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


1. ACCOUNTING POLICIES (CONTINUED)

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

DEFERRED POLICY ACQUISITION COSTS

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

PROPERTY AND EQUIPMENT

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

LOSS AND LOSS ADJUSTMENT EXPENSE RESERVES

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

                                       64
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)




1. ACCOUNTING POLICIES (CONTINUED)

REINSURANCE

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

INCOME TAXES

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

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

INCOME RECOGNITION

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

                                       65
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


1. ACCOUNTING POLICIES (CONTINUED)

STOCK OPTIONS

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

EARNINGS PER SHARE

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

COMPREHENSIVE INCOME

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

                                       2000            1999           1998
                                    -------------------------------------------
Unrealized gains (losses)
   arising during the
   period, before taxes             $ 11,170,218    $ (12,126,338)   $  115,278
Income taxes                          (3,909,576)       4,244,218       (40,347)
                                    -------------------------------------------
Unrealized gains (losses)
   arising during the
   period, net of taxes                7,260,642       (7,882,120)       74,931
                                    -------------------------------------------
Less reclassification adjustment:
   Gains realized in net income          285,849        1,153,191       880,502
   Income taxes                         (100,047)        (403,616)     (308,176)
                                    -------------------------------------------
Reclassification adjustment for
   gains realized in net income          185,802          749,575       572,326
                                    -------------------------------------------
Other comprehensive income -
   change in unrealized gains       $  7,074,840    $  (8,631,695)   $ (497,395)
                                    ===========================================

                                       66
<PAGE>
                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


1. ACCOUNTING POLICIES (CONTINUED)

NEW ACCOUNTING STANDARDS

In June 1998,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 133, Accounting for Derivative  Instruments
and Hedging  Activities  (SFAS 133), which was effective for all fiscal quarters
of all fiscal years  beginning  after June 15, 2000.  The statement  establishes
accounting and reporting  standards for derivative  instruments  and for hedging
activities. Management has determined that the adoption of SFAS 133 will have no
impact on the Company's  results of operations or its financial  position due to
its limited use of derivative instruments.

2. INVESTMENTS

The amortized cost and the fair value of investments are as follows:

<TABLE>
<CAPTION>
                                                          Gross          Gross
                                       Amortized       Unrealized      Unrealized       Fair
                                          Cost            Gains          Losses         Value
                                     ------------------------------------------------------------
<S>                                  <C>             <C>             <C>            <C>
At December 31, 2000
Available-for-sale securities:
   Fixed maturity securities:
     Corporate                       $  47,986,616   $    949,415    $  2,952,735   $  45,983,296
     U.S. Government                    12,933,975        332,841          28,503      13,238,313
     Mortgage-backed                       933,215         48,030               -         981,245
     State and municipal               139,926,385      4,880,661       1,085,248     143,721,798
                                     ------------------------------------------------------------
Total                                  201,780,191      6,210,947       4,066,486     203,924,652
   Equity securities                     9,630,441      2,022,360         564,276      11,088,525
                                     ------------------------------------------------------------
Total                                $ 211,410,632   $  8,233,307    $  4,630,762   $ 215,013,177
                                     ============================================================

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

                                       67
<PAGE>
                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


2. INVESTMENTS (CONTINUED)

The amortized  cost and estimated  fair value of  investments  in fixed maturity
securities, at December 31, 2000, are summarized by stated maturity as follows:

                                               Available-for-Sale
                                         --------------------------------
                                                                  Fair
                                         Amortized Cost           Value
                                         --------------------------------

Maturity:
   One year or less                     $    3,811,041     $    3,864,589
   After one year through five years        23,372,340         23,426,372
   After five years through ten years       31,492,288         30,841,881
   After ten years                         142,171,307        144,810,565
   Mortgage-backed securities                  933,215            981,245
                                        ---------------------------------
Total                                   $  201,780,191     $  203,924,652
                                        =================================

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

                                          Year ended December 31
                                     2000           1999           1998
                                  -----------------------------------------
Securities available-for-sale:
   Fixed maturity securities:
     Gross realized gains         $   225,989     $   468,368    $  307,255
     Gross realized losses         (2,255,251)       (613,015)      (73,329)
   Equity securities:
     Gross realized gains           2,560,569       1,430,241       707,695
     Gross realized losses           (401,663)       (208,956)      (91,425)
   Other investments:
     Gross realized gains             156,205         129,864        30,306
     Gross realized losses                  -         (53,311)            -
                                  -----------------------------------------
Net realized gains                $   285,849     $ 1,153,191    $  880,502
                                  =========================================

Net unrealized appreciation  (depreciation) on fixed maturity securities changed
by  $11,543,909,   $(12,923,040)  and  $(445,759),   in  2000,  1999  and  1998,
respectively;  the corresponding  amounts for equity securities were $(665,174),
$(350,244) and $(325,711).

                                       68
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


2. INVESTMENTS (CONTINUED)

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

                                               Year ended December 31
                                       2000           1999            1998
                                  -------------------------------------------
Income:
   Fixed maturities               $ 11,754,951    $  9,863,671   $  8,625,387
   Preferred stocks                    490,002         392,297        280,032
   Common stocks                       230,446         268,091        256,918
   Cash and short-term investments     635,272         465,544        494,565
                                  -------------------------------------------
                                    13,110,671      10,989,603      9,656,902
Expenses                               465,350         443,940        367,876
                                  -------------------------------------------
Net investment income             $ 12,645,321    $ 10,545,663   $  9,289,026
                                  ===========================================

At December 31, 2000 and 1999,  investments with an amortized cost of $6,537,653
and $6,445,356,  respectively,  were on deposit with state insurance departments
to satisfy regulatory requirements.

3. DEFERRED POLICY ACQUISITION COSTS

An analysis of deferred policy acquisition costs is as follows:

                                               Year ended December 31
                                          2000          1999           1998
                                     -----------------------------------------

Balance at beginning of year         $ 19,906,877   $ 16,015,559  $ 12,587,355
Acquisition costs deferred:
   Sales compensation                   5,218,844      5,361,233     4,926,075
   Underwriting and issue expenses      5,900,477      5,485,358     4,457,044
                                     -----------------------------------------
                                       11,119,321     10,846,591     9,383,119

Amortization of acquisition expenses    8,210,776      6,955,273     5,954,915
                                     -----------------------------------------
Net increase                            2,908,545      3,891,318     3,428,204
                                     -----------------------------------------
Balance at end of year               $ 22,815,422   $ 19,906,877  $ 16,015,559
                                     =========================================


                                       69
<PAGE>
                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)



4. RESERVE FOR UNPAID LOSSES AND LOSS ADJUSTMENT EXPENSES

Activity  for the reserve for unpaid  losses and loss  adjustment  expenses  for
2000, 1999 and 1998 is summarized as follows:

                                           2000           1999          1998
                                       ----------------------------------------
Reserve for losses and loss
  adjustment expenses at January 1,
  net of reinsurance recoverables      $ 14,723,192  $ 12,115,934  $  8,909,121
Incurred losses and loss adjustment
  expenses net of reinsurance
  recoveries (principally in respect
  of default notices occurring in):
     Current year                       11,229,124      9,322,142     7,953,412
     Redundancy on prior years          (3,641,887)    (2,210,826)     (944,794)
                                        ---------------------------------------
Total incurred losses and loss
  adjustment expenses                    7,587,237      7,111,316     7,008,618

Loss and loss adjustment expense
  payments net of reinsurance recoveries
   (principally in respect of default
    notices occurring in):
     Current year                          573,874        236,250       266,983
     Prior years                         6,760,375      4,267,808     3,534,822
                                       ----------------------------------------
Total loss and loss adjustment
   expense payments                      7,334,249      4,504,058     3,801,805
                                       ----------------------------------------

Reserve for losses and loss adjustment
   expenses at December 31, net of
   reinsurance recoverables of $10,808,
   $28,156, and $27,056 in 2000, 1999
   and 1998, respectively              $ 14,976,180  $ 14,723,192  $ 12,115,934
                                       ========================================

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

                                       70
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


5. COMMITMENTS

The Company  leases  certain office  facilities  and equipment  under  operating
leases. Rental expense for all leases was $1,398,586,  $1,154,671,  and $902,866
for  2000,  1999,  and  1998,   respectively.   Future  minimum  payments  under
noncancellable operating leases at December 31, 2000 are as follows:

               2001                  $ 1,197,332
               2002                      834,805
               2003                      294,851
               2004                       20,787
               Thereafter                  7,591
                                     -----------
                                     $ 2,355,366
                                     ===========

6. FEDERAL INCOME TAXES

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

                                   2000            1999             1998
                            ----------------------------------------------

Income tax computed at
   statutory rate           $  17,582,080    $  15,321,185   $  12,268,326
Increase (decrease) in
   taxes resulting from:
      Tax-exempt interest      (2,640,938)      (2,095,576)     (1,559,067)
      Other                       295,398          138,897         (30,970)
                            ----------------------------------------------
Income tax expense          $  15,236,540    $  13,364,506   $  10,678,289
                            ==============================================







                                       71
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


6. FEDERAL INCOME TAXES  (CONTINUED)

The tax effects of temporary  differences that give rise to significant portions
of deferred  tax assets and deferred  tax  liabilities  at December 31, 2000 and
1999 are presented below:

                                          2000              1999
                                      --------------------------------
Deferred tax liabilities
Statutory contingency reserve         $    51,025,055  $    37,382,052
Deferred policy acquisition costs           7,985,398        6,967,407
Unrealized investment gain                  1,262,863                -
Other                                       2,859,749        2,131,148
                                      --------------------------------
Total deferred tax liabilities             63,133,065       46,480,607

Deferred tax assets
Exercise of employee stock options          1,176,185        1,046,418
Unearned premiums                             535,471          514,658
Capital loss carryforward                     280,356          149,680
Losses and loss adjustment expenses           368,630          365,981
Unrealized investment loss                          -        2,546,666
Other                                         120,776          106,863
                                      --------------------------------
Total deferred tax assets                   2,481,418        4,730,266
                                      --------------------------------
Net deferred tax liability            $    60,651,647  $    41,750,341
                                      ================================

At December 31, 2000 and 1999,  Triad was  obligated  to purchase  approximately
$537,000 and $726,000 respectively, of Tax and Loss Bonds.

                                       72
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


7. INSURANCE IN FORCE, DIVIDEND RESTRICTION AND STATUTORY RESULTS

Approximately  56% of Triad's net risk in force is  concentrated in seven states
including 12% in California,  10% in Illinois,  8% in Georgia, 8% in Florida, 8%
in Texas, 6% in North Carolina, and 4% in Pennsylvania. While Triad continues to
diversify its risk in force  geographically,  a prolonged  recession in its high
concentration  areas could result in higher  incurred losses and loss adjustment
expenses for Triad.

Insurance  regulations  limit the writing of mortgage  guaranty  insurance to an
aggregate amount of insured risk no greater than twenty-five  times the total of
statutory capital and surplus and the statutory  contingency reserve. The amount
of net risk for  insurance in force at December 31, 2000 and 1999,  as presented
below, was computed by applying the various percentage settlement options to the
insurance in force  amounts  based on the original  insured  amount of the loan.
Triad's ratio is as follows:

                                          2000               1999
                                    ----------------------------------

     Net risk                       $ 3,738,596,850    $ 3,218,850,073
                                    ==================================

     Statutory capital and surplus  $   101,045,355    $    94,602,027
     Contingency reserve                150,762,722        113,813,344
                                    ----------------------------------
     Total                          $   251,808,077    $   208,415,371
                                    ==================================
     Risk-to-capital ratio                14.8 to 1          15.4 to 1
                                    ==================================

Triad and its wholly-owned  subsidiaries,  Triad Guaranty Assurance  Corporation
and Triad Re Insurance  Corporation  are each  required  under their  respective
domiciliary  states'  insurance  code to maintain a minimum  level of  statutory
capital and surplus. Triad, an Illinois domiciled insurer, is required under the
Illinois  Insurance Code (the "Code") to maintain minimum  statutory capital and
surplus of $5,000,000.

The Code  permits  dividends  to be paid  only out of earned  surplus,  and also
requires prior approval of extraordinary dividends. An extraordinary dividend is
any dividend or distribution of cash or other property, the fair market value of
which,  together  with that of other  dividends or  distributions  made within a
period of twelve consecutive  months,  exceeds the greater of (a) ten percent of
statutory surplus as regards policyholders,  or (b) statutory net income for the
calendar year  preceding the date of the  dividend.  Consolidated  net income as
determined in accordance with statutory  accounting  practices was  $47,830,174,
$40,019,488,  and  $31,252,891  for the years ended December 31, 2000,  1999 and
1998,  respectively.  At December 31, 2000,  the amount of the Company's  equity
that can be paid out in dividends to the  stockholders is $17,329,427,  which is
the earned surplus of Triad on a statutory basis.

                                       73
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


7. INSURANCE IN FORCE, DIVIDEND RESTRICTION AND STATUTORY RESULTS (CONTINUED)

The NAIC revised the  Accounting  Practices and  Procedures  Manual in a process
referred to as  Codification.  The revised  manual will be effective  January 1,
2001.  The  domiciliary  states of Triad and its  subsidiaries  have adopted the
provisions  of the revised  manual.  The  revised  manual has  changed,  to some
extent,  prescribed statutory accounting practices and will result in changes to
the accounting  practices that Triad and its  subsidiaries  use to prepare their
statutory-basis  financial  statements.  Management believes the impact of these
changes to Triad and its subsidiaries  statutory-basis capital and surplus as of
January 1, 2001 will not be significant.

8. RELATED PARTY TRANSACTIONS

The Company pays unconsolidated affiliated companies for management, investment,
and other  services.  The total  expense  incurred for such items was  $398,872,
$353,432 and $336,143 in 2000, 1999, and 1998,  respectively.  In addition,  the
Company  provides  certain  investment  accounting,  reporting  and  maintenance
functions  for  an  affiliate.  Income  earned  during  2000,  1999,  and  1998,
respectively,  for such services was $21,780,  $17,444, and $12,309.  Management
believes  that the income and expenses  incurred for such  services  approximate
costs that the Company and affiliates  would have incurred if those services had
been provided by unaffiliated third parties.

9. EMPLOYEE BENEFIT PLAN

Substantially  all employees  participate in the Company's 401(k) Profit Sharing
Plan.  Under the plan,  employees elect to defer a portion of their wages,  with
the  Company  matching  deferrals  at the  rate  of 50% of the  first  8% of the
employee's  salary  deferred.  The Company  contributed  $301,281,  $281,728 and
$225,797 for the years ended December 31, 2000, 1999, and 1998, respectively, to
the plan.

10. REINSURANCE

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



                                       74
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


10. REINSURANCE (CONTINUED)

Reinsurance  activity  for the years ended  December  31,  2000,  1999 and 1998,
respectively is as follows:

                                    2000         1999           1998
                               --------------------------------------

     Earned premiums ceded     $ 4,930,445   $ 1,645,655   $ 1,098,515
     Losses ceded                  (25,009)        9,686        (3,198)
     Earned premiums assumed         9,106        13,866        15,500
     Losses assumed                  8,514        30,057        50,241


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

11. LONG-TERM STOCK INCENTIVE PLAN

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

                                       75
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


11. LONG-TERM STOCK INCENTIVE PLAN (CONTINUED)

Information concerning the stock option plan is summarized below:

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

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

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

2000
   Outstanding, beginning of year   1,334,447       4.58 - 49.08       14.48
   Granted                            193,875      18.56 - 28.00       26.91
   Exercised                           41,500       4.58 - 27.88       11.36
   Canceled                             2,100      17.00 - 41.94       23.19
   Outstanding, end of year         1,484,722       4.58 - 49.08       16.17
   Exercisable, end of year         1,257,142       4.58 - 49.08       14.41

                                       76
<PAGE>
                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


11. LONG-TERM STOCK INCENTIVE PLAN (CONTINUED)

Information concerning stock options outstanding and exercisable at December 31,
2000 is summarized below:


               Outstanding                             Exercisable
------------------------------------------------  ------------------------
                            Weighted-  Weighted-               Weighted-
                             Average    Average                  Average
 Number of                  Exercise   Remaining   Number of  Exercisable
  Shares     Option Price     Price       Life       Shares       Price
------------------------------------------------  -------------------------
   618,650  $ 4.58 -  8.92    $ 6.23      3.20       618,650      $ 6.23
   276,913   10.17 - 18.56     13.17      5.87       246,175       12.60
   469,984   20.07 - 28.00     24.07      7.96       288,392       22.80
    58,900   37.75 - 39.75     39.04      7.21        46,233       38.85
    60,275   41.94 - 49.08     48.16      7.08        57,692       48.44
 ---------                                         ---------
 1,484,722                                         1,257,142
 =========                                         =========


At December  31,  2000,  1,730,080  shares of the  Company's  common  stock were
reserved and 245,358 shares were available for issuance under the Plan.

The options issued under the Plan in 2000,  1999 and 1998 vest over three years.
Certain of the options will immediately vest in the event of a change in control
of the Company.  Options granted under the Plan terminate no later than 10 years
following the date of grant.

Pro forma information required by Financial Accounting Standards Board Statement
No. 123, Accounting for Stock-Based  Compensation,  has been estimated as if the
Company had accounted for stock-based awards under the fair value method of that
Statement.  The fair  value of  options  granted  in  2000,  1999,  and 1998 was
estimated at the date of the grant using a  Black-Scholes  option  pricing model
with the following  weighted-average input assumptions:  risk-free interest rate
of 5.3% for  2000,  6.5% for 1999  and 5.1% for  1998;  dividend  yield of 0.0%;
expected  volatility  of .42 for  2000,  .42 for  1999 and .40 for  1998;  and a
weighted-average expected life of the option of seven years.

                                       77
<PAGE>

                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


11. LONG-TERM STOCK INCENTIVE PLAN (CONTINUED)

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

The following table  summarizes the fair value of options granted in 2000, 1999,
and 1998:

                                  Weighted-Average       Weighted-Average
                                   Exercise Price            Fair Value
        Type of Option         2000    1999     1998     2000   1999    1998
---------------------------- ------------------------   ----------------------

Stock Price = Exercise Price  $22.38  $17.49   $37.87   $8.17   $6.74  $13.42
Stock Price < Exercise Price  $27.95  $23.24   $49.08   $6.70   $5.96  $11.29


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

                                       2000          1999          1998
                                  ---------------------------------------

Net Income - as reported           $  34,998      $  30,410    $  24,374

Net Income - pro forma             $  34,107      $  29,675    $  23,779

Earnings per share - as reported:
   Basic                           $    2.63      $    2.28    $    1.83
   Diluted                         $    2.55      $    2.23    $    1.76

Earnings per share - pro forma:
   Basic                           $    2.56      $    2.23    $    1.78
   Diluted                         $    2.48      $    2.18    $    1.72

                                       78
<PAGE>
                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)


12. LONG-TERM DEBT

In January 1998, the Company  completed a $35 million private  offering of notes
due January 15, 2028.  Proceeds  from the  offering,  net of debt issue costs of
$547,102, totaled $34,452,898.  The notes, which represent unsecured obligations
of the Company, bear interest at a rate of 7.9% per annum and are non-callable.

13. FAIR VALUE OF FINANCIAL INVESTMENTS

The carrying values and fair values of financial  instruments as of December 31,
2000 and 1999 are summarized below:

                                   2000                          1999
                       -----------------------------  -------------------------
                          Carrying         Fair        Carrying       Fair
                            Value          Value         Value       Value
                        ----------------------------  -------------------------
Financial Assets
Fixed maturities
   available-for-sale   $ 203,924,652  $ 203,924,652  $ 164,579,416 $164,579,416
Equity securities
   available-for-sale      11,088,525     11,088,525     13,075,648   13,075,648

Financial Liabilities
Long-term debt             34,467,285     36,778,000     34,461,979   32,837,000

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

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

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

                                       79
<PAGE>



                               Triad Guaranty Inc.

             Notes to Consolidated Financial Statements (continued)




14. Unaudited Quarterly Financial Data

The following is a summary of the unaudited  quarterly results of operations for
the years ended December 31, 2000 and 1999 (in thousands except per share data):

                                              2000 Quarter
                                --------------------------------------
                                  First     Second    Third    Fourth     Year
                                -----------------------------------------------

Net premiums written            $ 17,063  $ 17,718  $ 18,293 $ 18,808  $ 71,882
Earned premiums                   17,144    17,836    18,071   18,792    71,843
Net investment income              2,926     3,067     3,156    3,496    12,645
Net losses incurred                1,596     2,060     1,932    1,999     7,587
Underwriting and other expenses
                                   6,804     6,723     6,482    6,980    26,989
Net income                         8,652     8,486     9,484    8,376    34,998
Basic earnings per share            .65       .64       .71       .63      2.63
Diluted earnings per share          .63       .62       .69       .61      2.55

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

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





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<PAGE>

                                   Schedule I
       Summary of Investments - Other Than Investments in Related Parties
                               Triad Guaranty Inc.
                                December 31, 2000

                                                                Amount at
                                                               Which Shown
                                     Amortized      Fair        in Balance
Type of Investment                      Cost        Value         Sheet
                                     --------------------------------------
                                             (dollars in thousands)
Fixed maturity securities,
 available-for-sale:
  Bonds:
     U.S. Government obligations..... $ 12,934     $ 13,238      $ 13,238
     Mortgage-backed securities......      933          981           981
     State and municipal bonds.......  139,926      143,722       143,722
     Corporate bonds.................   46,832       44,877        44,877
     Public utilities................    1,155        1,106         1,106
                                      --------     --------      --------
    Total                              201,780      203,924       203,924
                                      --------     --------      --------
Equity securities,
  available-for-sale:
   Common stocks:
       Public utilities..............      105           59            59
       Bank, Trust, and Insurance....    1,076        1,844         1,844
       Industrial & miscellaneous....    2,028        2,996         2,996
   Preferred Stock ..................    6,422        6,190         6,190
                                      --------     --------      --------
    Total............................    9,631       11,089        11,089
                                      --------     --------      --------
Short-term investments...............   17,012       17,012        17,012
                                      --------     --------      --------
Total investments other than
 investments in related parties...... $228,423     $232,025      $232,025
                                      ========     ========      ========









                                       81
<PAGE>

           Schedule II - Condensed Financial Information of Registrant
                            Condensed Balance Sheets
                               Triad Guaranty Inc.
                                (Parent Company)
                                                        December 31
                                                     2000         1999
                                                    ----         ----
                                                  (dollars in thousands)
 Assets:

    Fixed maturities, available-for-sale.......   $  6,563    $  6,511
    Notes receivable from subsidiary...........     25,000      25,000
    Investment in subsidiaries.................    200,952     158,499
    Cash and short-term investments............      1,302       1,433
    Accrued investment income..................      1,221       1,206
    Deferred income taxes......................        389         230
    Other assets...............................        216        -
                                                  --------     -------
    Total assets...............................   $235,643    $192,879
                                                  ========    ========

 Liabilities and stockholders' equity:
  Liabilities:
    Current taxes payable......................   $     70    $     70
    Long-term debt.............................     34,467      34,462
    Accrued interest on long-term debt.........      1,275       1,275
                                                  --------     -------
    Total liabilities..........................     35,812      35,807
 Stockholders' equity:
    Common stock...............................        134         133
    Additional paid-in capital.................     62,723      61,972
    Accumulated other comprehensive income.....      2,351      (4,724)
     Deferred compensation.....................       (135)        (69)

    Retained earnings..........................    134,758      99,760
                                                  --------    --------
 Total stockholders' equity....................    199,831     157,072
                                                  --------    --------
 Total liabilities and stockholders' equity....   $235,643    $192,879
                                                  ========    ========

                  See notes to condensed financial statements.

                                       82
<PAGE>

           Schedule II - Condensed Financial Information of Registrant
                         Condensed Statements of Income
                               Triad Guaranty Inc.
                                (Parent Company)


                                                 Year Ended December 31
                                             ------------------------------
                                               2000       1999         1998
                                               ----       ----         ----
                                                 (dollars in thousands)
 Revenues:
    Net investment income................... $ 2,908     $ 2,875     $ 2,787
    Realized investment gains...............    (373)       (124)         14
                                             -------     -------     -------
                                               2,535       2,751       2,801
                                             -------     -------     -------
 Expenses:
    Interest on long-term debt..............   2,770       2,780       2,554
    Operating expenses......................      90          35           5
                                             -------     -------     -------
                                               2,860       2,815       2,559
                                             -------     -------     -------
 Income (loss) before federal
     income taxes and equity in
     undistributed income of subsidiaries...    (325)        (64)        242

 Income Taxes:
    Current.................................         -        24          38
    Deferred................................    (129)        (46)         42
                                             -------     -------     -------
                                                (129)        (22)         80
                                             -------     -------     -------
  Income (loss) before equity
     in undistributed income of
     subsidiaries...........................    (196)        (42)        162

 Equity in undistributed income
     of subsidiaries........................  35,194      30,452      24,213
                                             -------     -------     -------
 Net income................................. $34,998     $30,410     $24,375
                                             =======     =======     =======

                  See notes to condensed financial statements.

                                       83
<PAGE>

           Schedule II - Condensed Financial Information of Registrant
                       Condensed Statements of Cash Flows
                               Triad Guaranty Inc.
                                (Parent Company)

                                                      Year Ended December 31
                                                      -----------------------
                                                       2000     1999     1998
                                                       ----     ----     ----
 OPERATING ACTIVITIES                                   (dollars in thousands)
   Net income........................................ $34,998  $30,410  $24,375
   Adjustments to reconcile net income to net cash
    (used in)  provided  by operating activities:
    Equity in undistributed income of subsidiaries... (35,194) (30,452) (24,213)
    Accrued investment income........................     (15)      19   (1,225)
    Other assets.....................................    (216)       -       56
    Deferred income taxes............................    (129)     (46)      42
    Current tax payable..............................       -       25       42
    Accrued interest on long-term debt...............       -        -    1,275
    Accretion of discount on investments.............     (60)     (86)    (130)
    Amortization of deferred compensation............      85       34        -
    Amortization of debt issue costs.................       5        5        4
    Realized investment loss (gain) on securities....     373      124      (14)
    Accrued expenses and other liabilities...........       -      (25)     (10)
                                                      -------  -------- -------
   Net cash (used in) provided by operating
         activities..................................    (153)       8      202

 INVESTING ACTIVITIES
   Securities available-for-sale:
    Fixed maturities:
          Purchases..................................  (2,951)  (3,682) (13,909)
          Sales......................................   2,501    6,282    4,276
    Equity securities:
          Purchases..................................       -        -     (300)
          Sales......................................       -      284        -
    Issuance of Surplus Note to subsidiary...........       -        -  (25,000)
                                                      -------  -------  -------
   Net cash (used in) provided by investing
         activities..................................    (450)   2,884  (34,933)

 FINANCING ACTIVITIES

    Proceeds from issuance of long-term debt.........      -         -   34,453
    Proceeds from exercise of stock options..........     472      200      956
    Retirement of common stock.......................       -   (2,602)    (297)
                                                       -------  ------   ------
   Net cash provided by (used in) financing
         activities..................................     472   (2,402)  35,112
                                                      -------  -------   ------
   Increase in cash and short-term investments.......    (131)     490      381
   Cash and short-term investments at
        beginning of year............................   1,433      943      562
                                                      -------  -------  -------
   Cash and short-term investments at end of year.... $ 1,302  $ 1,433  $   943
                                                      =======  =======  =======

                  See notes to condensed financial statements.

                                       84
<PAGE>

           Schedule II - Condensed Financial Information of Registrant
                               Triad Guaranty Inc.
                                (Parent Company)
                               Supplementary Notes

NOTE 1

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

NOTE 2

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

NOTE 3

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

                                                  Gross       Gross
                                   Amortized    Unrealized  Unrealized   Fair
                                      Cost        Gains       Losses     Value
                                   -------------------------------------------
At December 31, 2000
Available-for-sale securities:
   Fixed maturity securities:
      Corporate                       $7,292       $93        $822      $6,563
                                   -------------------------------------------
   Total                               7,292        93         822       6,563
      Equity Securities                    -         -           -           -
                                   -------------------------------------------
   Total                              $7,292       $93        $822      $6,563
                                   ===========================================



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


                                       85
<PAGE>

           Schedule II - Condensed Financial Information of Registrant
                               Triad Guaranty Inc.
                                (Parent Company)
                               Supplementary Notes


NOTE 3 (CONTINUED)

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


                                          Year ended December 31
                                         2000      1999       1998
                                       ----------------------------
Income:
   Fixed maturities                    $  664     $  645     $  679
   Equity securities                        -         18         17
   Cash and short-term investments         55         42         71
   Note receivable from subsidiary      2,225      2,225      2,052
                                       ----------------------------
                                        2,944      2,930      2,819
Expenses                                   36         55         32
                                       ----------------------------
Net investment income                  $2,908     $2,875     $2,787
                                       ============================


NOTE 4

     In January of 1998, the Company completed a $35 million private offering of
notes due January 15, 2028. Proceeds from the offering,  net of debt issue costs
of  $547,102,   totaled  $34,452,898.   The  notes,  which  represent  unsecured
obligations  of the Company,  bear  interest at a rate of 7.9% per annum and are
non-callable.

                                       86
<PAGE>



                            Schedule IV - Reinsurance

                               Triad Guaranty Inc.
                        Mortgage Insurance Premium Earned
                  Years Ended December 31, 2000, 1999 and 1998



                             Ceded To     Assumed                Percentage of
                 Gross        Other      From Other     Net      Amount Assumed
                 Amount     Companies    Companies     Amount         to Net
                ---------------------------------------------------------------
                                (dollars in thousands)
 2000........   $76,764      $4,930          $9        $71,843        0.0%
                =======      ======         ===        =======

 1999........   $65,602      $1,646         $14        $63,970        0.0%
                =======      ======         ===        =======

 1998........   $53,905      $1,099         $16        $52,822        0.0%
                =======      ======         ===        =======












                                       87