Exhibit 10.16

                  ECONOMIC VALUE ADDED INCENTIVE BONUS PROGRAM
                               (SENIOR MANAGEMENT)

This memorandum  summarizes the Incentive Bonus Program established by the Board
of Directors of Triad Guaranty Inc. to provide to senior  management  incentives
to exert their best efforts on behalf of the Company and its  shareholders.  The
Program is administered by the Compensation  Committee of the Board of Directors
which  determines in its discretion those  individuals who shall  participate in
the Program. The Program is subject to change as determined by the Board.

Triad  Guaranty  Inc.  and its  subsidiaries  (collectively  referred  to as the
"Company") is expected to provide a certain return to shareholders  based on the
estimated  current cost of capital  including the market risk associated with an
investment in the Company's business.  This rate of return may vary over time as
market  conditions  change.  To the extent that the  Company  provides a rate of
return in excess of this "cost of capital,"  there has been economic value added
("EVA"*) to the Company. If the rate of return is less than the cost of capital,
then EVA is negative and value has been  removed from the Company.  The Board of
Directors has authorized linking incentive compensation for senior management to
this positive or negative result relative to an estimated cost of capital in the
form of an EVA incentive bonus program.

The  dollar  value of the EVA bonus  pool  established  under  this  Program  is
calculated in accordance  with a formula  established  by the Board of Directors
which is tied to the Company's statutory cash flow statement plus components for
federal income taxes paid and depreciation.  If the actual rate of return equals
the cost of capital in a given year,  then there is no economic  value added and
the incremental change in funds available for distribution from the pool will be
zero for that  year.  If the  actual  rate of  return  is less  than the cost of
capital in a given year, then the funds available for distribution from the pool
may be reduced for that year.

The Board  recognizes that overall EVA has been negative  through  calendar year
1996 and cannot be optimized  until the Company's  capital can be fully deployed
in operations.  The Board further  recognizes that the Company's  initial public
offering  resulted in capital which must be deployed over an extended  period of
time given the Company's  conservative  underwriting  philosophy  and regulatory
constraints.  As a result,  the  calculation  of the bonus pool will be modified
during an interim  and a  transition  period.  During the interim  period  (when
overall EVA remains  negative),  the contribution to the pool will be calculated

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as a percentage of the improvement in EVA as determined by the Board rather than
a percentage of the overall EVA. During the transition period (the year in which
overall  EVA  first  becomes  positive),  the  contribution  to the pool will be
calculated as a percentage of the  improvement  in EVA up to the cost of capital
and an additional percentage of the excess, also as determined by the Board.

Thereafter,  the bonus pool will be calculated as a fixed  percentage of overall
EVA which the Board  will  determine.  The bonus pool will begin with a positive
balance representing a hypothetical carry forward from prior years.

If there is economic  value added in a given year,  there will  ordinarily  be a
credit to the bonus pool for that year.  The payout will then be  determined  in
accordance  with the  established  formula absent  circumstances  which,  in the
judgment of the Compensation Committee,  would cause it to reduce or suspend the
payout.  The Board  may from time to time  establish  criteria  relating  to the
circumstances  which would affect such payout,  including but not limited to the
percentage  of the total bonus pool balance which would be paid out in any given
year.

As has been the Company's  practice in years prior to the  implementation of the
Company's EVA Incentive Bonus Program,  a portion of any award is made in equity
or equity equivalents such as stock options. Any amounts awarded in a given year
will consist of a cash payment of a percentage  of the award with the  remainder
in a grant of restricted  stock or stock options  administered  consistent  with
existing stock option agreements.

The  amount,  if any,  payable  to each  individual  participant  in the  senior
management  EVA  Incentive  Bonus  Program  will be based on that  participant's
contribution  to the  Company  during the year as  determined  by the  Company's
Compensation  Committee after considering the  recommendations  of the President
and Chairman.  The participant must be actively employed with the Company at the
time the bonus is paid in order to be eligible for payment. No participant has a
legal,  equitable or vested interest in any portion of the bonus pool. Any bonus
or  portion  of a bonus  (whether  cash or  equity)  which  is  forfeited  by an
individual  participant  will  remain in the pool for the  benefit of  remaining
participants.  Bonus payments, if any, shall be made on or before the end of the
first calendar quarter for the preceding calendar year.




*EVA is a registered trademark of Stern Stewart & Co.

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