Edgar Filing: TRIAD GUARANTY INC

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )

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TRIAD GUARANTY INC.
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(Name of Registrant as Specified In Its Charter)

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SEC 1913 (02-02)

[TRIAD GUARANTY INC. LOGO]

TRIAD GUARANTY INC.
101 South Stratford Road, Suite 500
Winston-Salem, North Carolina 27104

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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 2004

To the Stockholders of TRIAD GUARANTY INC.

NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Triad
Guaranty Inc. (the "Company") will be held at the offices of Triad Guaranty
Inc., 101 South Stratford Road, Winston-Salem, North Carolina, on Thursday, May
20, 2004, at 2:00 p.m. Eastern Time, for the purpose of considering and acting
upon the following matters:

1. To elect seven directors to serve until the next annual meeting of
stockholders and until their successors are duly elected and qualified;
and

2. To consider and act upon such other business as may properly come before
the meeting or any adjournments thereof.

Stockholders of record as of the close of business on April 1, 2004 shall
be entitled to notice of and to vote at the meeting. The transfer books will not
be closed. For ten days prior to the meeting, a list of stockholders entitled to
vote at the meeting will be open to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, at the offices
of the Company, 101 South Stratford Road, Winston-Salem, North Carolina 27104.
Stockholders who do not expect to attend the meeting in person are urged to
execute and return the accompanying proxy in the envelope enclosed.

By order of the Board of Directors

Earl F. Wall
Secretary

Winston-Salem, North Carolina
April 8, 2004

PROXY STATEMENT
TRIAD GUARANTY INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 20, 2004

GENERAL INFORMATION

This proxy statement is being furnished to the stockholders of Triad
Guaranty Inc., a Delaware corporation (the "Company"), 101 South Stratford Road,
Winston-Salem, North Carolina 27104, in connection with the solicitation of
proxies by its Board of Directors for use at the annual meeting of stockholders
to be held on Thursday, May 20, 2004 and at any adjournments thereof. The
approximate date on which this proxy statement and the accompanying proxy are
first being sent to stockholders is April 8, 2004.

The proxy is revocable at any time before it is voted by a subsequently
dated proxy, by written notification to the persons named therein as proxies,
which may be mailed or delivered to the Company at the above address, or by
attendance at the meeting and voting in person. All shares represented by
effective proxies will be voted at the meeting and at any adjournments thereof.

If the enclosed proxy is properly executed and returned in time for voting
with a choice specified thereon, the shares represented thereby will be voted as
indicated thereon. If no specification is made, the proxy will be voted by the
persons named therein as proxies for the election as directors of the nominees
named below (or substitutes therefor, if any nominees are unable or refuse to
serve), and in their discretion upon such matters not presently known or
determined which may properly come before the meeting.

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 residential mortgage lenders
and investors. The Company has one class of stock outstanding, Common Stock, par
value $.01 per share ("Common Stock"). On April 1, 2004, 14,472,553 shares of
Common Stock were outstanding and entitled to one vote each on all matters to be
considered at the meeting. Stockholders of record as of the close of business on
April 1, 2004 are entitled to notice of and to vote at the meeting. There are no
cumulative voting rights with respect to the election of directors.

Inspector(s) of election will be appointed to tabulate the number of shares
of Common Stock represented at the meeting in person or by proxy, to determine
whether or not a quorum is present and to count all votes cast at the meeting.
The inspector(s) of election will treat abstentions and broker nonvotes as
shares that are present and entitled to vote for purposes of determining the
presence of a quorum. With respect to the tabulation of votes cast on a specific
proposal presented to the stockholders at the meeting, abstentions will be
considered as present and entitled to vote with respect to that specific
proposal, whereas broker nonvotes will not be considered as present and entitled
to vote with respect to that specific proposal.

PRINCIPAL HOLDERS OF COMMON STOCK

The following table shows, with respect to each person who is known to be
the beneficial owner of more than 5% of the Common Stock of the Company: (i) the
total number of shares of Common Stock beneficially owned as of February 17,
2004; and (ii) the percent of the Common Stock so owned as of that date:

AMOUNT AND NATURE PERCENT OF
NAME AND ADDRESS OF OF BENEFICIAL COMMON
BENEFICIAL OWNER OWNERSHIP(1) STOCK
------------------- ----------------- ----------

Collateral Investment Corp.(2)(3)(6)........................ 2,573,551 17.8%
Collateral Mortgage, Ltd.(4)(5)(7).......................... 2,572,500 17.8%
T. Rowe Price Associates(11)................................ 1,417,099 9.8%

The following table shows with respect to each director of the Company, the
executive officers of the Company named in the Executive Compensation Table, and
all directors and executive officers as a group, twelve in number: (i) the total
number of shares of Common Stock beneficially owned as of February 17, 2004; and
(ii) the percent of the Common Stock so owned as of that date:

AMOUNT AND NATURE PERCENT OF
OF BENEFICIAL COMMON
NAME OF BENEFICIAL OWNER OWNERSHIP(1) STOCK
------------------------ ----------------- ----------

Glenn T. Austin, Jr. ....................................... 160 *
William T. Ratliff, III(8).................................. 208,183(9)(10) 1.4%
Darryl W. Thompson.......................................... 307,700(9) 2.1%
David W. Whitehurst......................................... 48,297(9) *
Robert T. David............................................. 13,112(9) *
Michael A. F. Roberts....................................... 606(9) *
Richard S. Swanson.......................................... 300 *
Kenneth N. Lard............................................. 16,586(9) *
Ron D. Kessinger............................................ 27,641(9) *
Kenneth C. Foster........................................... 12,632(9) *
Earl F. Wall................................................ 24,140(9) *
------- ---
659,357
All directors and executive officers as a group (12
persons)(8)............................................... 671,562 4.6%

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* Less than one percent.

(1) Calculated pursuant to Rule 13d-3(d) of the Securities Exchange Act of
1934. Unless otherwise stated below, each such person has sole voting and
investment power with respect to all such shares. Under Rule 13d-3(d),
shares not outstanding which are subject to options, warrants, rights or
conversion privileges exercisable within 60 days are deemed outstanding for
the purpose of calculating the number and percentage owned by such person,
but are not deemed outstanding for the purpose of calculating the
percentage owned by each other person listed.

(2) The business address of Collateral Investment Corp., an insurance holding
company ("CIC"), is 1900 Crestwood Boulevard, Birmingham, Alabama
35210-2034.

(3) Mr. William T. Ratliff, Jr. is a vice president and director of CIC and
beneficially owns 24.59% of the outstanding voting capital stock of CIC.
Accordingly, Mr. Ratliff, Jr. may be deemed to be the beneficial owner of
the shares of Common Stock owned by CIC. The business address of Mr.
Ratliff, Jr. is 1900 Crestwood Boulevard, Birmingham, Alabama 35210-2034.
Mr. Ratliff, Jr. is the father of Mr. William T. Ratliff, III.

(4) The business address of Collateral Mortgage, Ltd., a mortgage banking and
real estate lending firm ("CML"), is 1900 Crestwood Boulevard, Birmingham,
Alabama 35210-2034.

(5) Collat, Inc. ("Collat") is the general partner of CML and as such may be
deemed to be the beneficial owner of the shares of Common Stock owned by
CML. Mr. Ratliff, Jr. is vice president and a director of Collat. Mr.
Ratliff, Jr. beneficially owns 29.88% of the outstanding limited
partnership interests in CML. Accordingly, Mr. Ratliff, Jr. may be deemed
to be the beneficial owner of the shares of Common Stock owned by CML. The
business address of Collat and Mr. Ratliff, Jr. is 1900 Crestwood
Boulevard, Birmingham, Alabama 35210-2034.

(6) 1,550,000 shares of Common Stock owned by CIC are pledged to secure two
bank loans.

(7) 2,112,500 shares of Common Stock owned by CML are pledged to secure four
bank loans.

(8) Mr. William T. Ratliff, III is president and a director of CIC and
beneficially owns 26.8% of the outstanding voting capital stock of CIC. Mr.
Ratliff, III beneficially owns 7.79% of the outstanding limited partnership
interests in CML. Mr. Ratliff, III is also president and a director of
Collat, the general partner of CML, and beneficially owns 50.2% of the
outstanding voting capital stock of Collat. Accordingly, Mr. Ratliff, III
may be deemed to be the beneficial owner of the shares of Common Stock
owned by CIC and CML. The business address of Mr. Ratliff, III is 1900
Crestwood Boulevard, Birmingham, Alabama 35210-2034. Mr. Ratliff, III is
the son of Mr. Ratliff, Jr. No other director or executive officer of the
Company beneficially owns any capital stock of CIC or partnership interests
in CML.

(9) Includes shares of Common Stock which could be acquired through the
exercise of stock options as follows: Mr. Ratliff, III, 128,291 shares; Mr.
Thompson, 277,407 shares; Mr. Whitehurst, 34,307 shares; Mr. David, 6,812
shares; Mr. Roberts, 306 shares; Mr. Lard, 6,667 shares; Mr. Kessinger,
7,109 shares; Mr. Foster, 10,292 shares; Mr. Wall, 21,115 shares; all
directors and executive officers as a group, 499,460 shares.

(10) Includes 1,500 shares owned by Mr. Ratliff's wife and 5,900 shares owned by
his minor children.

(11) Number of shares reported on Schedule 13G filed by T. Rowe Price
Associates, Inc. ("Price") with the Securities and Exchange Commission on
February 12, 2004. Price has sole voting power with respect to 600,999
shares and sole dispositive power with respect to all 1,417,099 shares. The
business address of Price is 100 E. Pratt Street, Baltimore, Maryland
21202-1099.

ELECTION OF DIRECTORS

NOMINEES AND DIRECTORS

At the meeting, seven directors are to be elected to hold office until the
next annual meeting of stockholders and until their successors are duly elected
and qualified. All of the nominees are presently directors of the Company.

The affirmative vote of the holders of a plurality of the shares of Common
Stock represented in person or by proxy at the annual meeting is required to
elect directors. It is intended that, in the absence of contrary specifications,
votes will be cast pursuant to the enclosed proxies for the election of such
nominees. Should any of the nominees become unable or unwilling to accept
nomination or election, it is intended, in the absence of contrary
specifications, that the proxies will be voted for the balance of those named
and for a substitute nominee or nominees. However, the Company now knows of no
reason to anticipate such an occurrence. All of the nominees have consented to
be named as nominees and to serve as directors if elected.

The following persons are nominees for election as directors of the
Company:

WILLIAM T. RATLIFF, III Age -- 50 Director since -- 1993

Mr. Ratliff 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 Collateral Investment Corp. ("CIC"), an insurance
holding company, since 1990 and was President and General Partner of
Collateral Mortgage, Ltd. ("CML"), a mortgage banking and real estate
lending firm, from 1987 to 1995. Mr. Ratliff has also been President of
Collat, Inc. since 1995 and a director since 1989. Collat, Inc. is the
general partner of CML. Mr. Ratliff has been Chairman of New South
Federal Savings Bank ("New South") since 1986 and President and a
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 1983. 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 Age -- 63 Director since -- 1993

Mr. Thompson has been President and Chief Executive Officer 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 Mortgage Guaranty Insurance
Corporation. Mr. Thompson joined Mortgage Guaranty Insurance Corporation
in 1972.

GLENN T. AUSTIN, JR., Age -- 55 Director since -- 2003

Mr. Austin retired in 2003 as Senior Vice President of the Southeastern
Regional Office of Fannie Mae after a twenty-one year career with Fannie
Mae. Prior to joining Fannie Mae, Mr. Austin was Senior Vice President
of Field Operations for PMI Mortgage Insurance Company. Mr. Austin
currently serves on the board of directors of HomeBanc Mortgage
Corporation. He is also on the Executive Committee of the Consumer
Credit Counseling Service of Metropolitan Atlanta where he chairs the
Development Committee.

DAVID W. WHITEHURST Age -- 54 Director since -- 1993

Mr. Whitehurst is the owner of DW Investments, LLC, a real estate and
investment holding company. Mr. Whitehurst was Executive Vice President,
Chief Financial Officer and Treasurer of the Company from 1993 until
1999, and served as Secretary of the Company from 1993 until 1996. Mr.
Whitehurst has also been a Director of Triad since 1989 and was a Vice
President from 1989 until 1999. He was Executive Vice President and
Chief Operating Officer of CIC from 1995 until 2000 and was Chief
Financial Officer of CIC until 2002. He was a director of New South from
1989 to 2001. Mr. Whitehurst was President, Treasurer and a Director of
Southland National Insurance Corp. and its subsidiaries from 1997 until
July 2000. Mr. Whitehurst is a certified public accountant.

ROBERT T. DAVID Age -- 65 Director since -- 1993

Mr. David is President and Chief Executive Officer of Integrated
Photonics, Inc., a manufacturer of laser optic instruments. From 1995
until 1996, Mr. David was the Garrett Professor of Business
Administration at Berry College in Rome, Georgia. From 1988 through
1994, Mr. David was Vice President and Dean of the Samford University
School of Business.

MICHAEL A. F. ROBERTS Age -- 62 Director since -- 2002

Mr. Roberts was an Advisory Managing Director of Salomon Smith Barney
from 1999 to 2002. Prior to that he had been Head of the firm's
Insurance Investment Banking Group since the formation of Salomon Smith
Barney in 1997. During the period 1987 to 1997 he was the Founder and
Head of Smith Barney's Insurance Investment Banking Group. From 1982 to
1987 he was the Chief Administrative Officer of Smith Barney's
Investment Banking Department. In 1977 he formed Smith Barney's West
Coast Investment Banking Group headquartered in San Francisco which he
headed until 1982. He joined the firm in 1969 and served as a Managing
Director (or its equivalent) from 1973 until 2002.

RICHARD S. SWANSON Age -- 54 Director since -- 2003

Mr. Swanson retired in 2003 as Chairman of Home Street Bank, a regional
savings bank and mortgage company headquartered in Seattle, Washington.
He served as President and CEO of Home Street Bank from 1990 through
2001, and as its Executive Vice President and General Counsel from 1988
through 1989. Previously, Mr. Swanson was an attorney in private
practice specializing in corporate and real estate finance. Mr. Swanson
has served as a director and Vice Chair of the Federal Home Loan Bank of
Seattle, and currently serves as Chair of the Washington State Tobacco
Settlement Authority.

THE BOARD OF DIRECTORS

The business and affairs of the Company are managed under the direction of
the Board of Directors. The Board of Directors has determined that all the
Company's directors, with the exception of Messrs. Ratliff, Thompson and
Whitehurst, are independent under the recently revised rules of the National
Association of Securities Dealers relating to the listing requirements for
inclusion in the Nasdaq Stock Market (the "Nasdaq rules"). During 2003, the
Board of Directors met ten times. No director attended fewer than 75% of the
aggregate number of meetings of the Board of Directors and the committees on
which he served.

BOARD COMMITTEES

The Board of Directors has five standing committees: the Executive
Committee, the Audit Committee, the Corporate Governance and Compensation
Committee, the Finance and Investment Committee and the Nominating Committee.

The Executive Committee is empowered to exercise the authority of the Board
of Directors in the management of the business and affairs of the Company
between meetings of the Board of Directors, except as such authority may be
limited by the provisions of the General Corporation Law of the State of
Delaware. The Executive Committee, which is composed of Messrs. Ratliff
(Chairman), Thompson and Whitehurst, did not act during 2003.

The Audit Committee appoints the independent auditors for the following
year. The Audit Committee also reviews the scope of the annual audit, the annual
and quarterly financial statements of the Company and the auditor's report
thereon and the auditor's comments relative to the adequacy of the Company's
system of internal controls and accounting systems. The Audit Committee, which
is composed of Messrs. Swanson (Chairman), Austin and Whitehurst, met 14 times
in 2003.

The Board of Directors has determined that each of Mr. Swanson and Mr.
Whitehurst is an "audit committee financial expert" as defined in the
Sarbanes-Oxley Act of 2002 and the applicable rules and regulations of the
Securities and Exchange Commission. The Board has also determined that all of
the members of the Audit Committee (i) are independent under Rule 10A-3(b)(1) of
the Securities Exchange Act of 1934, (ii) have not participated in the
preparation of the financial statements of the Company or any current subsidiary
during the past three years, and (iii) are able to read and understand
fundamental financial statements, including a balance sheet, income statement
and cash flow statement. In addition, the Board has determined that Messrs.
Austin and Swanson are independent under the Nasdaq rules. The third member, Mr.
Whitehurst, is not independent under the Nasdaq rules because he received
compensation from the Company and its affiliates in excess of $60,000 during
fiscal year 2002. The Nasdaq rules permit the Company to appoint one
non-independent director to the Audit Committee to serve for up to two years if
the Company's Board, under exceptional and limited circumstances, determines
that membership on the Committee by a non-independent director is required by
the best interests of the Company and its stockholders. The Board believes that
Mr. Whitehurst's extensive background in financial, business, accounting and
financial oversight matters allows him to provide valuable advice and counsel to
the Audit Committee. The Board therefore has determined that Mr. Whitehurst's
service on the Audit Committee is in the best interests of the Company and its
stockholders.

The Compensation Committee has historically made recommendations regarding
salaries and other compensation for the Company's officers, including bonuses,
grants of stock options and other incentive programs, and has also administered
the Company's 1993 Long-Term Stock Incentive Plan. In 2003, this committee was
reconstituted as the Corporate Governance and Compensation Committee
(hereinafter, the "Compensation Committee"). In addition to continuing its
functions regarding executive compensation, this committee also makes
recommendations to the Board regarding corporate governance matters. The
Compensation Committee, which is composed of Messrs. Roberts (Chairman) Austin,
David and Swanson, met six times in 2003. Each member of the Compensation
Committee is independent under the Nasdaq rules.

The Finance and Investment Committee was formed in 2003 to review the
capital structure needs of the Company as well as the Company's investment
policies. The Finance and Investment Committee, which is composed of Messrs.
David (Chairman), Roberts and Whitehurst, met twice in 2003.

The Nominating Committee was formed in 2004 to oversee director
nominations. The Nominating Committee's role is to identify and recommend the
slate of director nominees for election to the Company's Board of

Directors, identify and recommend candidates to fill vacancies occurring between
annual stockholder meetings, and identify and recommend Board members for
service on committees of the Board. The Nominating Committee is composed of
Messrs. Roberts (Chairman), Austin, David and Swanson. Each member of the
Nominating Committee is independent under the Nasdaq rules.

- Operation of the Nominating Committee. The Nominating Committee acts
pursuant to a written charter adopted by the Board, which is available at
the Company's website at: http://www.triadguaranty.com. Nominations for
director submitted to the Committee by stockholders, other directors or
management are evaluated according to the nominee's knowledge, experience
and background. While the Nominating Committee does not have any specific
minimum qualifications for director candidates, the Committee may take
into consideration such factors and criteria as it deems appropriate in
evaluating a candidate, including his or her judgment, skill, integrity,
diversity and business or other experience.

- The process for identifying and evaluating candidates. The Nominating
Committee is responsible for identifying and evaluating candidates for
Board membership and selecting or recommending to the Board nominees to
stand for election. Candidates may come to the attention of the Nominating
Committee through current Board members, professional search firms,
stockholders or other persons. The Nominating Committee Charter provides
that the Nominating Committee will consider candidates recommended by
stockholders or other members of the Board or by management. The
Nominating Committee evaluates all candidates selected for consideration,
including incumbent directors, based on the same criteria as described
above. All candidates who, after evaluation, are then recommended by the
Nominating Committee and approved by the Board, are included in the
Company's recommended slate of director nominees in its proxy statement.

- General Nomination Right of all Stockholders. The Company's Certificate
of Incorporation establishes procedures, including advance notice
procedures, with regard to the nomination, other than by or at the
direction of the Board of Directors, of candidates for election as
directors. In general, notice must be received by the Company at its
principal executive offices not less than 60 days nor more than 90 days
prior to meetings of stockholders of the Company. Such notice must set
forth all information with respect to each such nominee as required by
the federal proxy rules. Such notice must be accompanied by a signed
statement of such nominee consenting to be a nominee and a director, if
elected.

REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION

GENERAL

The purpose of the Company's executive compensation program is to enable
the Company to attract, retain and motivate qualified executives to insure the
long-term success of the Company and its business strategies.

The Company's overall executive compensation philosophy is as follows:

- to attract, retain and motivate qualified executive talent critical for
the long-term success of the Company;

- to reinforce strategic performance objectives through the use of
incentive compensation programs; and

- to create a mutuality of interest between executive officers and the
stockholders through compensation structures that align compensation with
the rewards and risks of strategic decision making.

The objectives of the Compensation Committee with regard to executive
compensation include linking compensation to improving return on equity using
economic value added ("EVA") concepts. (EVA is a registered trademark of Stern
Stewart & Co.) Accordingly, the Compensation Committee has developed certain
models for
7

measuring EVA and determining the portion of that value which will be available
for incentive compensation awards. These concepts were incorporated in a set of
program guidelines (the "EVA Program") approved by the Board of Directors.

Under the EVA Program, it is expected that the Company will provide a
return to stockholders based on the estimated current cost of capital and market
risk associated with an investment in the Company's business. To the extent the
Company provides a rate of return in excess of this "cost of capital," there has
been economic value added to the Company and a discretionary bonus pool based on
a portion of the EVA is established to provide incentive compensation to senior
management. Awards of amounts in the bonus pool to individual participants are
based on the individual's contribution to the Company during the year as
determined by the Committee after considering recommendations of the Chairman
and the President and an evaluation of expected operating results in the future.
The amounts allocated to the bonus pool for the current year are based upon
calculations under the EVA Program in each of the prior three years and the
current year. Awards under this program are made in the form of cash bonuses and
equity grants within guidelines established under the EVA Program.

In establishing the EVA Program, it is the Committee's objective that
incentive compensation (cash and equity awards) be a more significant component
in the total executive compensation package. The Committee believes this
approach will create a stronger mutuality of interests between the Company's
executive officers and stockholders by requiring the executive officers to share
in the Company's operating results and stock market performance. Under the EVA
Program, incentive compensation awards in the future could be significantly
greater or less than awards made in 2003 and prior years. All of the Company's
executive officers currently participate in the EVA Program.

The Company, through its wholly-owned subsidiary, Triad, has employment
agreements described elsewhere in this proxy statement with Messrs. Thompson,
Kessinger, Lard, Foster and Wall. These agreements are intended to secure for
the Company the continued services of the officers and provide them appropriate
incentives for maximum effort on behalf of the Company. Salary levels
established under the employment agreements are subject to annual review. The
Company also maintains the 1993 Long-Term Stock Incentive Plan (the "Stock
Incentive Plan" or "Plan") under which grants of restricted Common Stock and
options to purchase stock have been made as described elsewhere in this proxy
statement.

The compensation of each of the executive officers of the Company is
composed of base compensation and incentive compensation (Mr. Ratliff is
eligible to receive incentive compensation as discussed below). The 2003
compensation of the Company's Chief Executive Officer, Mr. Thompson, was subject
to the same policies as are applicable to all other executive officers of the
Company. All executive compensation awards for 2003 were determined by the
Compensation Committee.

Mr. Ratliff is employed by Collat and does not receive a separate salary
from the Company for his services to the Company. Triad is party to an
Administrative Services Agreement with CIC and New South described elsewhere
herein. The services of Mr. Ratliff to the Company are included in charges to
the Company under the Administrative Services Agreement. Mr. Ratliff is also
eligible to receive incentive compensation based upon the Compensation
Committee's evaluation of his contributions to the Company. See "Directors'
Compensation."

Overall executive compensation levels for 2003 were slightly lower than for
2002. Under the terms of the Company's long-term incentive plan, overall cash
bonuses and equity awards to the executive officers were also slightly lower in
2003 than in 2002.

Section 162(m) under the Internal Revenue Code (the "Code") adopted in 1993
limits the deductibility for federal income tax purposes of certain compensation
paid to top executives of publicly held corporations. Certain

types of compensation may be excluded from the limitations under Section 162(m).
The Compensation Committee believes that the tax aspects of executive
compensation awards are one of several important considerations and it will
continue to review the applicability of the Code limitations to its executive
compensation programs. However, the Committee intends to maintain the
flexibility to take any actions which it deems to be in the interests of the
Company and its stockholders.

Policies relative to each of the elements of compensation of the executive
officers are discussed below.

BASE COMPENSATION

The Committee's approach to base compensation is to offer competitive
salaries, consistent with its objective that base salaries be a smaller
component in the total executive compensation package. Those executive officers
covered by employment agreements receive base salaries under those agreements,
subject to annual review, and are eligible for incentive compensation awards as
well.

The Committee makes salary decisions in an annual review with input from
the Chief Executive Officer. In the case of Mr. Thompson, the Committee is
guided by the recommendation of the Chairman of the Board. The Committee's
review considers the decision-making responsibilities of each position and the
experience, work performance, and overall contribution of the executive officer
to the Company in relationship to overall Company performance. In general, the
salary decisions are subjective with no quantitative measures utilized. In
establishing the 2003 salaries of the Company's executive officers, the
Compensation Committee considered the responsibilities, experience and
performance of the individual in relationship to the Company's growth and
financial results. The Committee also took into account the compensation of
executives at comparable companies (companies within the private mortgage
insurance industry as well as those outside the industry). The 2003 average base
salaries of the executive officers named in the Executive Compensation Table
increased by approximately 4% in 2003.

INCENTIVE COMPENSATION

The Company's incentive compensation awards for 2003 were based on the
guidelines established by the Compensation Committee under the EVA Program.
Awards granted under the EVA Program consist of a maximum of 50% in cash to the
Chairman, the President or an Executive Vice President and a maximum of 65% in
cash to a Senior Vice President or Vice President, or such lesser cash
percentages as may be determined by the Committee. The balance of the awards are
made in the form of equity grants under the Company's Stock Incentive Plan.

Total incentive compensation for each executive under the EVA Program is
determined by the Compensation Committee. The Compensation Committee determines
the individuals to whom the awards are granted, the type and amount of awards to
be granted, the timing of grants and the terms, conditions and provisions of
awards to be granted, and the restrictions related thereto. In making those
awards, the Committee considers the recommendations of the Company's Chairman
and President, the responsibilities of each individual, and his past performance
and contributions to the Company and anticipated future contributions to the
Company, in relationship to the Company's overall performance. The 2003 average
incentive compensation of the executive officers which appear in the Executive
Compensation Table decreased by approximately 5% in 2003.

CASH AWARDS

The average cash bonus awarded to the executive officers named in the
Executive Compensation Table was 137% of their base salaries in 2002 and 125% in
2003. Awards for 2003 were made consistent with the guidelines established under
the EVA Program.
9

EQUITY AWARDS

Pursuant to the Company's Stock Incentive Plan, certain directors, officers
and key employees of the Company are eligible to receive long-term incentives in
a variety of forms including nonqualified stock options, incentive stock
options, stock appreciation rights, restricted stock, phantom stock and other
stock-based awards. The purpose of the Stock Incentive Plan is to enable the
Company to attract and retain the best available directors, executive personnel
and other key employees in order to provide for the Company's long-term growth
and business success. The Compensation Committee believes that the grant of
awards whose value is related to the value of the Company's Common Stock aligns
the interests of the Company's directors, executive officers and key employees
with its stockholders.

For 2003, all awards to the executive officers under the Stock Incentive
Plan represented the equity portion of the overall incentive compensation award
for such individual. The Committee considered grants under the Plan in the form
of shares of restricted stock valued at the market price of the Company's Common
Stock on the date of grant or in the form of ten-year stock options exercisable
at either the market price on the date of grant or 130 percent of that price.
The Committee utilized a Black-Scholes pricing model and applied a discount for
non-transferability of options and deferred vesting to determine the number of
"at the market options" or "premium priced options" which would be awarded
relative to shares of restricted stock. For 2003, the awards to all of the
executive officers were made in the form of shares of restricted stock. These
awards are summarized in footnotes to the Executive Compensation Table elsewhere
herein.

The salary and incentive compensation, including cash and equity amounts,
paid by the Company to its Chief Executive officer and the other four most
highly compensated executive officers of the Company in 2003 is set forth in the
tables that follow this report. The Compensation Committee believes that the
executive officers of the Company are dedicated to increasing profitability and
stockholder value and that the compensation policies that the Board and the
Compensation Committee have established and administer contribute to this focus.

COMPENSATION COMMITTEE
Michael A. F. Roberts, Chairman
Glenn T. Austin, Jr.
Robert T. David
Richard S. Swanson

The foregoing Report of the Board of Directors on Executive Compensation
shall not be deemed to be incorporated by reference into any filing of the
Company under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Company specifically incorporates such information
by reference.

EXECUTIVE COMPENSATION TABLE

The following table sets forth certain information regarding the
compensation paid or accrued by the Company to or for the account of the Chief
Executive Officer and the other four most highly compensated executive officers
of the Company during each of the Company's fiscal years ended December 31,
2003, 2002 and 2001:

LONG TERM COMPENSATION AWARDS(2)
-----------------------------------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
NAME AND ----------------------- RESTRICTED STOCK UNDERLYING COMPENSATION
PRINCIPAL POSITION SALARY($) BONUS($)(1) AWARDS($)(3)(4)(5)(6) OPTIONS(#)(7)(8) ($)(9)
------------------ --------- ----------- --------------------- ----------------- ------------

Darryl W. Thompson..... 2003 $253,000 $366,500 $366,692 $7,000
Chief Executive 2002 244,000 400,000 400,151 5,500
Officer 2001 232,183 379,500 379,894 5,250
Ron D. Kessinger....... 2003 193,000 250,000 250,895 6,000
Executive Vice 2002 185,400 306,000 306,583 5,500
President
and Chief Financial 2001 180,000 285,000 285,118 5,250
Officer
Kenneth N. Lard........ 2003 182,000 182,000 182,274 6,000
Executive Vice 2002 175,000 178,580 10,000 5,550
President 2001 168,000 142,450 5,250
Kenneth C. Foster...... 2003 150,000 135,200 72,910 6,000
Senior Vice President 2002 143,750 97,500 11,880 5,550
Risk Management 2001 78,750 74,588 40,572 12,000 5,250
Earl F. Wall........... 2003 144,000 218,400 117,942 6,000
Senior Vice 2002 138,000 230,100 124,093 5,550
President,
Secretary and General 2001 120,750 215,800 8,840 5,250
Counsel

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

(1) The Company maintains an executive bonus program pursuant to which cash
bonuses may be awarded annually to officers and other key employees of the
Company as a part of overall incentive compensation awards.

(2) Number of shares of Common Stock subject to options, or awards of restricted
stock, granted during or with respect to the year indicated under the
Company's Stock Incentive Plan. See "Report of the Corporate Governance and
Compensation Committee of the Board -- Incentive Compensation."

(3) As part of its 2003 incentive compensation awards, the Company in February
2004 granted 6,840 shares of restricted stock to Mr. Thompson; 4,680 shares
of restricted stock to Mr. Kessinger; 3,400 shares of restricted stock to
Mr. Lard; 1,360 shares of restricted stock to Mr. Foster; and 2,200 shares
of restricted stock to Mr. Wall under the Company's Stock Incentive Plan.
The value of shares of restricted stock is based upon the closing price of
the Company's Common Stock on the date of grant ($53.61). One-third of the
restricted shares will be vested and transferable on January 1, 2005,
another third will be vested and transferable on January 1, 2006, and on
January 1, 2007 all of the restricted shares will be vested and
transferable. Holders of restricted stock are entitled to receive dividends
or other distributions with respect to such shares during the period of
restriction. The restricted stock awards become immediately vested and
transferable in the event of a change of control of the Company.

(4) As a part of its 2001 incentive compensation awards, the Company in January
2002 granted 9,620 shares of restricted stock to Mr. Thompson and 7,220
shares of restricted stock to Mr. Kessinger under the Company's

Stock Incentive Plan. The Company also granted 980 shares of restricted
stock to Mr. Foster in March 2002 under the Plan. The value of shares of
restricted stock is based upon the closing price of the Company's Common
Stock on the date of grant (January -- $39.49; March -- $41.40). One-third
of the restricted shares became vested and transferable on January 1, 2003,
another third became vested and transferable on January 1, 2004, and on
January 1, 2005 all of the restricted shares will be vested and
transferable. Holders of restricted stock are entitled to receive dividends
or other distributions with respect to such shares during the period of
restriction. The restricted stock awards become immediately vested and
transferable in the event of a change of control of the Company.

(5) As part of its 2002 incentive compensation awards, the Company in February
2003 granted 12,060 shares of restricted stock to Mr. Thompson; 9,240 shares
of restricted stock to Mr. Kessinger; and 3,740 shares of restricted stock
to Mr. Wall. The value of shares of restricted stock is based upon the
closing price of the Company's Common Stock on the date of grant ($33.18).
One-third of the restricted shares granted became vested and transferable on
January 1, 2004, another third will be vested and transferable on January 1,
2005, and on January 1, 2006 all of the restricted shares will be vested and
transferable. Holders of restricted stock are entitled to receive dividends
or other distributions with respect to such shares during the period of
restriction. The restricted stock awards become immediately vested and
transferable in the event of a change of control of the Company.

(6) The aggregate restricted stock holdings as of December 31, 2003 were as
follows: 18,474 shares valued at $929,981 for Mr. Thompson; 15,171 shares
valued at $763,708 for Mr. Kessinger; 654 shares valued at $32,922 for Mr.
Foster; and 3,740 shares valued at $188,272 for Mr. Wall. The foregoing
values were calculated based upon the closing price of the Company's stock
at December 31, 2003 ($50.34).

(7) As a part of its 2002 incentive compensation awards, the Company in February
2003 granted stock options to Mr. Lard and Mr. Foster to purchase 10,000
shares and 7,500 shares respectively, of Common Stock under the Company's
Stock Incentive Plan at the exercise price of $33.18 per share. One-third of
the options granted became vested and exercisable on December 31, 2003,
another third will be vested and exercisable on December 31, 2004, and on
December 31, 2005 all of the options granted will be vested and exercisable.
All options will become immediately vested and exercisable in the event of a
change of control of the Company. The exercise price of $33.18 was the
closing market price of the Company's Common Stock on the date of grant. Mr.
Foster was granted an additional 4,380 shares in March 2003 at the exercise
price of $36.00 per share with the same vesting schedule.

(8) As a part of its 2001 incentive compensation awards, the Company in January
2002 granted stock options to purchase 8,840 shares of Common Stock at the
exercise price of $39.49 per share to Mr. Wall. One-third of the options
granted became vested and exercisable on December 31, 2002, another third
became vested and exercisable on December 31, 2003, and on December 31, 2004
all of the options granted will be vested and exercisable. All options will
become immediately vested and exercisable in the event of a change of
control of the Company. The exercise price of $39.49 was the closing market
price of the Company's Common Stock on the date of grant. Mr. Foster was
granted stock options to purchase 5,000 shares of Common Stock at the
exercise price of $47.60 in May 2002. One-third of the options granted
became vested and exercisable on May 15, 2003, another third will be vested
and exercisable on May 15, 2004, and on May 15, 2005 all of the options
granted will be vested and exercisable. Mr. Foster was also granted options
to purchase 7,000 shares of Common Stock in May 2001 at $34.80. One-third of
the options granted became vested and exercisable on May 9, 2002, another
third became vested and exercisable on May 9, 2003, and on May 9, 2004 all
of the options granted will be vested and exercisable.

(9) Matching contributions made by the Company pursuant to its 401(k) Profit
Sharing Retirement Plan.

EMPLOYEE STOCK OPTIONS

Option Grants. The following table sets forth certain information
regarding options to purchase shares of Common Stock granted to the executive
officers of the Company named in the Executive Compensation Table during the
Company's 2003 fiscal year:

INDIVIDUAL GRANTS
------------------------------------------------------------- POTENTIAL REALIZABLE VALUE
NUMBER OF % OF TOTAL AT ASSUMED ANNUAL RATES OF
SECURITIES OPTIONS STOCK PRICE APPRECIATION
UNDERLYING GRANTED TO EXERCISE FOR OPTION TERM(3)
OPTIONS GRANTED EMPLOYEES IN PRICE ---------------------------
NAME (#)(1) FISCAL YEAR ($/SH)(2) EXPIRATION DATE 5%($) 10%($)
---- --------------- ------------ --------- ---------------- ----------- -----------

Kenneth N. Lard...... 10,000 13.61% $33.18 February 5, 2013 $208,659 $528,787
Kenneth C. Foster.... 7,500 10.20 33.18 February 5, 2013 156,495 396,590
Kenneth C. Foster.... 4,380 5.96 36.00 March 20, 2013 99,163 251,301

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

(1) All options granted under the Company's Stock Incentive Plan are
nonqualified stock options. The options were granted in January and March
2003. One third of the options granted became vested and exercisable on
December 31, 2003, one-third will be vested and exercisable on December 31,
2004, and one-third will be vested and exercisable on December 31, 2005. All
options will become immediately vested and exercisable in the event of a
change of control of the Company.

(2) The option exercise prices of $33.18 and $36.00 were the closing market
prices of the Company's Common Stock on the dates of grant.

(3) The assumed annual rates of appreciation of 5% and 10% would result in the
price of the Company's Common Stock increasing over such ten-year periods to
$54.04 and $86.06, respectively (based on the grant date price of $33.18)
and $58.64 and $93.37, respectively (based on the grant date price of
$36.00).

Option Exercises. The following table sets forth certain information
regarding options to purchase shares of Common Stock exercised during the
Company's 2003 fiscal year and the number and value of unexercised options to
purchase shares of Common Stock held at the end of the Company's 2003 fiscal
year by the executive officers of the Company named in the Executive
Compensation Table:

NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
NUMBER OF YEAR END(#) FISCAL YEAR END ($)(1)
SHARES ACQUIRED VALUE ------------------------- -------------------------
NAME ON EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- ---------- ------------------------- -------------------------

Darryl W. Thompson............ 50,550 $2,070,912 277,407/ 0 $6,506,238/ $0
Ron D. Kessinger.............. 18,033 241,536 7,109/ 0 72,660/ 0
Kenneth N. Lard............... 7,583 82,562 6,667/ 6,667 125,078/114,479
Kenneth C. Foster............. 0 0 10,292/13,588 141,016/173,219
Earl F. Wall.................. 10,175 154,346 18,168/ 2,947 155,211/ 32,004

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

(1) Value of unexercised options is equal to the difference between the fair
market value per share of Common Stock at December 31, 2003 and the option
exercise price per share multiplied by the number of shares subject to
options.

EQUITY COMPENSATION PLAN INFORMATION

NUMBER OF SECURITIES NUMBER OF SECURITIES
TO BE ISSUED WEIGHTED-AVERAGE REMAINING AVAILABLE
UPON EXERCISE OF EXERCISE PRICE OF FOR FUTURE ISSUANCE
OUTSTANDING OPTIONS, OUTSTANDING OPTIONS, UNDER EQUITY
PLAN CATEGORY WARRANTS AND RIGHTS WARRANTS AND RIGHTS COMPENSATION PLANS
------------- -------------------- -------------------- --------------------

Equity compensation plans approved by security
holders..................................... 758,710 $29.58 398,648
Equity compensation plans not approved by
security holders............................ 0 0 0
Total......................................... 758,710 $29.58 398,648

EMPLOYMENT AGREEMENTS

In October 1993, the Company, through its wholly-owned subsidiary Triad,
entered into employment agreements with Messrs. Thompson and Kessinger. These
agreements had initial terms of two years and upon expiration extend
automatically for successive one-year terms unless terminated by either party.
Similar agreements were entered into with Mr. Lard in January 1997 and with
Messrs. Wall and Foster in May 2002. Base annual salary for 2004 under the
agreements is as follows: Mr. Thompson, $275,000; Mr. Kessinger, $193,000; Mr.
Wall, $150,000; Mr. Foster, $160,000 and Mr. Lard, $190,000. The agreements are
terminable by Triad in the event of the death of the employee, absence over a
period of time due to incapacity, a material breach of duties and obligations
under the agreement or other serious misconduct. The agreements also are
terminable by Triad without cause; provided, however, that in such event, the
executive is entitled to a cash amount equal, in the case of Messrs. Thompson,
Kessinger, Foster and Wall, to 200% of the total base annual salary paid to such
executive during the two previous calendar years and, in the case of Mr. Lard,
the total base annual salary and cash bonuses paid to such executive during the
previous two calendar years.

The employment agreements provide that in the event of a change of control
of the Company (as defined in the agreements) and the termination of the
executive's employment by the executive as a result of his relocation or certain
specified adverse changes in his employment status or compensation, the
executive is entitled to a cash amount equal, in the case of Messrs. Thompson,
Kessinger, Foster and Wall, to 200% of the total base annual salary paid to such
executive during the two previous calendar years and, in the case of Mr. Lard,
the total base annual salary and cash bonuses paid to such executive during the
previous two calendar years.

The employment agreements contain certain noncompetition provisions
restricting each executive from competing with the business of Triad for a
period of two years following termination of his employment.

DIRECTORS' COMPENSATION

Directors who are employees of the Company or any of its subsidiaries or
affiliates do not receive any compensation for serving as directors of the
Company. For 2003, directors who were not employees of the Company or any of its
subsidiaries or affiliates received an annual retainer of $40,000 of which at
least 25% must be paid in the form of restricted shares of Common Stock or
options to purchase shares of Common Stock. All directors are reimbursed for
expenses incurred in attending board meetings.

Mr. Ratliff is eligible to receive incentive compensation based upon the
Compensation Committee's evaluation of his contributions to the Company. For
2003, Mr. Ratliff was awarded a cash bonus in the amount of $120,000 and 2,240
shares of restricted stock.(1)

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

Messrs. Austin, David, Roberts and Swanson served on the Compensation
Committee during fiscal year 2003. No member of the Compensation Committee is or
was formerly an officer or employee of the Company or any of its subsidiaries.

CERTAIN TRANSACTIONS

The Company engaged in certain transactions with CIC, CML and their
affiliate New South Federal Savings Bank during 2003 including those described
below. CIC and CML each own 17.8% of the Common Stock of the Company. Mr.
Ratliff, Chairman of the Board of the Company, is also President of CIC, former
President and former General Partner of CML, and Chairman of the Board of New
South. All transactions between the Company and CIC, CML or New South were on
terms no less favorable to the Company than could have been obtained from
unaffiliated third parties.

Investment Advisory Agreement. Triad is a party to an investment advisory
agreement with CML under which CML provides investment advice and services to
Triad and assists Triad in executing purchases and sales of investments. Under
the investment advisory agreement, Triad pays CML a quarterly fee based upon the
value of assets under supervision. During 2003, Triad incurred fees of $453,713
pursuant to the investment advisory agreement.

Administrative Services Agreement. Triad is a party to an administrative
services agreement with CIC and New South under which CIC or New South provide
Triad with certain management services. Under the administrative services
agreement, Triad pays CIC and New South an annual fee based on the estimated
cost of providing the services. During 2003, Triad incurred fees of $120,675
pursuant to the administrative services agreement.

In accordance with the Nasdaq rules, these agreements are reviewed on an
ongoing basis for conflicts of interest and have been approved by the Audit
Committee.

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

(1) One-third of the restricted shares granted will be vested and exercisable on
January 1, 2005, another third will be vested and exercisable on January 1,
2006, and on January 1, 2007, all of the restricted shares granted will be
vested and exercisable. All restricted shares will become immediately vested
and exercisable in the event of a change of control of the Company.
15

PERFORMANCE GRAPH

The following graph compares the cumulative total return on the Company's
Common Stock with the cumulative total return of the Nasdaq Stock Market (U.S.)
Index, the Nasdaq Financial Stocks Index and the Nasdaq Insurance Stocks Index
for the period beginning December 31, 1993 and for each year end through
December 31, 2003.

[PERFORMANCE GRAPH]

--------------------------------------------------------------------------------------------------------------------------
1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003
--------------------------------------------------------------------------------------------------------------------------

Triad Guaranty
Inc............... 101.56 79.69 165.62 269.52 543.73 413.66 426.55 621.07 680.04 691.10 944.03
--------------------------------------------------------------------------------------------------------------------------
NASDAQ Stock Market
(U.S.)............ 99.69 97.48 137.83 169.56 207.73 292.80 542.93 327.44 259.90 179.69 268.65
--------------------------------------------------------------------------------------------------------------------------
NASDAQ Finance
Stocks............ 98.80 99.09 144.38 185.37 283.54 275.48 273.67 295.86 324.97 334.65 452.63
--------------------------------------------------------------------------------------------------------------------------
NASDAQ Insurance
Stocks............ 94.72 89.16 126.65 144.37 211.84 188.74 145.52 183.83 197.02 198.57 245.41
--------------------------------------------------------------------------------------------------------------------------

The graph assumes $100 invested on December 31, 1993 in the Company's
Common Stock, the Nasdaq Stock Market (U.S.) Index, the Nasdaq Financial Stocks
Index and the Nasdaq Insurance Stocks Index. The Nasdaq indices were prepared
for Nasdaq by the Center for Research in Security Prices at the University of
Chicago.

The foregoing table shall not be deemed to be incorporated by reference
into any filing of the Company under the Securities Act of 1933 or the
Securities Exchange Act of 1934, except to the extent that the Company
specifically incorporates such information by reference.

REPORT OF THE AUDIT COMMITTEE

The following is the report of the Audit Committee with respect to the
Company's audited financial statements for the fiscal year ended December 31,
2003. The Audit Committee acts pursuant to the Audit Committee Charter, a copy
of which is attached as Appendix "1" to this Proxy Statement. The Audit
Committee reviews and reassesses the adequacy of the Audit Committee Charter on
an annual basis.

The following report of the Audit Committee does not constitute "soliciting
material" and should not be deemed to be "filed" with the Securities and
Exchange Commission or incorporated by reference into any other filing of the
Company under the Securities Act of 1933 or the Securities Exchange Act of 1934,
except to the extent that the Company specifically incorporates this report by
reference in any of those filings.

FINANCIAL STATEMENTS

The Audit Committee has reviewed and discussed the Company's audited
financial statements, internal controls and the overall quality of the Company's
financial reporting with management and with Ernst & Young LLP, the Company's
independent auditors. The Audit Committee has discussed with Ernst & Young LLP
the matters required to be discussed by Statement of Auditing Standards No. 61
which includes, among other items, matters related to the conduct of the audit
of the Company's financial statements.

The Audit Committee has also received written disclosures and the letter
from Ernst & Young LLP required by Independence Standards Board Standard No. 1,
which relates to the auditors' independence from the Company and its related
entities, and has discussed with Ernst & Young LLP its independence from the
Company.

Based on the review and discussions referred to above, the Audit Committee
recommended to the Company's Board of Directors that the Company's audited
financial statements be included in the Company's Annual Report on Form 10-K for
the fiscal year ended December 31, 2003.

SELECTION OF INDEPENDENT AUDITORS

The Audit Committee expects to meet prior to the annual meeting to select
the Company's independent auditors for fiscal year 2004.
AUDIT COMMITTEE
Richard S. Swanson, Chairman
Glenn T. Austin, Jr.
David W. Whitehurst

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

The Company's consolidated financial statements for the year ended December
31, 2003 were audited by Ernst & Young LLP ("E&Y"), independent auditors.
Representatives of E&Y are expected to attend the annual meeting to respond to
appropriate questions and to make an appropriate statement if they desire to do
so.

AUDIT FEES

The aggregate fees, including expenses reimbursed, billed by E&Y for
professional services rendered for the audit of the consolidated financial
statements of the Company and its subsidiaries for the reviews of the Company's
quarterly financial statements were $216,500 in fiscal year 2003 and $177,800 in
fiscal year 2002.

AUDIT RELATED SERVICES

The aggregate fees, including expenses reimbursed, billed by E&Y for
services related to the audit or review of the Company's financial statements
were $21,250 in fiscal year 2003 and $45,190 in fiscal year 2002. These services
included an actuarial certification and an audit of the Company's 401(k) plan.

TAX FEES

The aggregate fees, including expenses reimbursed, billed by E&Y for tax
compliance, tax advice and tax planning services were $24,755 in fiscal year
2003 and $28,814 in fiscal year 2002. These services included preparation of the
Company's consolidated federal and state tax returns and preparation of the
Company's 5500 filing.

ALL OTHER FEES

The aggregate fees, including expenses reimbursed, billed by E&Y for
services rendered to the Company and its subsidiaries, other than the services
described above, were $1,905 for fiscal year 2003 and $7,743 for fiscal year
2002. These fees were for a subscription to E&Y's online accounting and
reporting database.

The Audit Committee pre-approves all auditing services and permitted
non-audit services, including the fees and terms thereof, to be performed for
the Company by its independent auditor, subject to the de minimus exceptions for
non-audit services as provided for in the Sarbanes-Oxley Act and the rules and
regulations of the Securities and Exchange Commission. The Audit Committee may
form and delegate authority to subcommittees, consisting of one or more members,
to grant pre-approvals of permitted non-audit services, provided that decisions
of such subcommittees to grant pre-approvals are presented to the full Audit
Committee at its next scheduled meeting. In fiscal year 2003, all non-audit
services were approved by the Audit Committee.

COMMUNICATIONS WITH DIRECTORS

The Board of Directors of the Company believes that it is important for
stockholders to have a means of communicating with the Board. Accordingly,
stockholders desiring to send a communication to the Board of Directors, or to a
specific director, may do so by delivering a letter to the Secretary of the
Company at Triad Guaranty Inc., 101 South Stratford Road, Suite 500,
Winston-Salem, North Carolina 27104. The mailing envelope must contain a clear
notation indicating that the enclosed letter is a "stockholder-board
communication" or "stockholder-director communication," as applicable. All such
letters must identify the author as a stockholder and clearly state whether the
intended recipients of the letter are all members of the Board of Directors or
certain specified individual directors. The Secretary will open such
communications and make copies, and then circulate them to the appropriate
director or directors.

The Company strongly encourages all directors to attend the annual meetings
of stockholders. All of the directors were in attendance at the 2003 Annual
Meeting of Stockholders.

CODE OF ETHICS

The Board of Directors has adopted a Code of Ethics for the Company's
principal executive and senior financial officers which is available at the
Company's website at: http://www.triadguaranty.com. This Code supplements the
Company's Code of Conduct applicable to all employees and directors and is
intended to promote honest and ethical conduct, full and accurate reporting, and
compliance with laws as well as other matters.

STOCKHOLDER PROPOSALS FOR 2005 ANNUAL MEETING

Stockholders intending to present a proposal for consideration at the
Company's next annual meeting may do so by following the procedures prescribed
in Rule 14a-8 under the Securities Exchange Act of 1934 and the Company's
Certificate of Incorporation. To be eligible for inclusion in the Company's
proxy statement, stockholder proposals must be received by the Company no later
than December 9, 2004. Notice to the Company of a stockholder proposal submitted
otherwise than pursuant to Rule 14a-8 will be considered untimely if received by
the Company after February 22, 2005, and the proxies named in the accompanying
form of proxy may exercise discretionary voting power with respect to any such
proposal as to which the Company does not receive a timely notice.

OTHER MATTERS

The Company is not aware of any matters, other than those referred to
herein, which will be presented at the meeting. If any other appropriate
business should properly be presented at the meeting, the proxies named in the
accompanying form of proxy will vote the proxies in accordance with their best
judgment.

EXPENSES OF SOLICITATION

All expenses incident to the solicitation of proxies by the Company will be
paid by the Company. In addition to solicitation by mail, arrangements have been
made with brokerage houses and other custodians, nominees, and fiduciaries to
send the proxy material to their principals, and the Company will reimburse them
for their reasonable out-of-pocket expenses in doing so. Proxies may also be
solicited personally or by telephone or telegraph by employees of the Company.

Winston-Salem, North Carolina
April 8, 2004

APPENDIX 1

Revised March 30, 2004

TRIAD GUARANTY INC.

AUDIT COMMITTEE CHARTER

ORGANIZATION

This charter governs the operations of the audit committee. The committee
shall review and reassess the adequacy of the charter at least annually.

The committee shall be appointed by the board of directors and shall
consist of at least three directors, each of whom shall have been determined by
the board to be "independent" under the rules of the NASDAQ Stock Market (the
"NASDAQ Rules"), the Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and
Rule 10A-3 under the Securities Exchange Act of 1934, as amended ("Rule 10A-3").
In addition, the board shall determine that each committee member has not
participated in the preparation of the financial statements of the Company or
any current subsidiary of the Company at any time during the past three years,
and that each committee member is able to read and understand fundamental
financial statements, including a balance sheet, income statement, and cash flow
statement. The board shall also determine that the audit committee has, and will
continue to have, at least one member who has past employment experience in
finance or accounting, requisite professional certification in accounting, or
any other comparable experience or background which results in the individual's
financial sophistication, including being or having been a chief executive
officer, chief financial officer or other senior officer with financial
oversight responsibilities.

Notwithstanding the foregoing, one director who satisfies the independence
requirements under Rule 10A-3 and is not a current officer or employee of the
Company or a family member of such officer or employer, but who is not
independent under the NASDAQ Rules, may nevertheless be appointed to the
committee if the board of directors determines that such appointment is in the
best interests of the Company and its stockholders. A member appointed under
this exception may not serve longer than two years and may not chair the audit
committee.

The board shall determine whether at least one committee member is an
"audit committee financial expert" as defined by the Securities and Exchange
Commission (the "SEC"). If the board determines that no member qualifies as an
audit committee financial expert, the board shall disclose in the Company's
proxy statement its reasons for not having a member who qualifies as such.

STATEMENT OF POLICY

The audit committee, in its capacity as a committee of the board of
directors, shall provide independent review and oversight with respect to:

- the Company's financial statements and the financial reporting processes;

- the Company's systems of internal accounting and financial controls;

- the annual independent audit of the Company's financial statements; and

- legal compliance and ethics programs as may be established by Company
management and the board.

In so doing, it is the responsibility of the committee to maintain free and
open communication between the committee, the independent auditors and
management of the Company. In discharging its oversight role, the
1-1

committee shall have full access to all books, records, facilities, and
personnel of the Company and the authority to retain independent counsel and
other advisers, as it determines necessary, in order to fully and properly
discharge its responsibilities.

The Company shall provide for appropriate funding for payment of:

- Compensation to any registered public accounting firm engaged for the
purpose of preparing or issuing an audit report or performing other
audit, review or attest services for the Company;

- Compensation to any advisors employed by the audit committee pursuant to
Rule 10A-3(b)(4); and

- Ordinary administrative expenses of the committee that are necessary or
appropriate in carrying out its duties

SCOPE OF RESPONSIBILITIES AND FUNCTIONS

Management shall be responsible for preparing the Company's financial
statements, and the independent auditors shall be responsible for auditing those
financial statements and reviewing the Company's unaudited interim financial
statements. The primary responsibility of the audit committee shall be to
oversee the Company's financial reporting process and report the results of its
activities to the board.

The following shall be the principal functions of the audit committee in
carrying out its oversight responsibilities. These are set forth as a guide,
with the understanding that the committee may supplement them as it deems
appropriate.

- The committee shall be directly responsible for the appointment,
compensation, retention and oversight of the work of the Company's
independent auditor (including resolution of any disagreement between
management and the auditor regarding financial reporting). The Company's
independent auditor shall report directly to the committee.

- In connection with each audit, the committee shall obtain from the
Company's auditor a formal written statement delineating all
relationships between the auditor and the Company, consistent with
Independence Standards board Standard 1. The committee shall actively
engage in a dialogue with the auditor with respect to any disclosed
relationships or services that may impact the objectivity and
independence of the auditor, and shall take or recommend that the full
board take, appropriate action to oversee the independence of the outside
auditor.

- The committee shall pre-approve all auditing services and permitted
non-audit services (as defined in the Sarbanes-Oxley Act), including the
fees and terms thereof, to be performed for the Company by its
independent auditor, subject to the de minimus exceptions for non-audit
services described in Section 202 of the Sarbanes-Oxley Act and the rules
and regulations of the Securities and Exchange Commission. The committee
may form and delegate authority to subcommittees, consisting of one or
more members, to grant pre-approvals of permitted non-audit services,
provided that decisions of such subcommittees to grant pre-approvals
shall be presented to the full committee at its next scheduled meeting.

- The committee shall also take reasonable steps to ensure that the
auditors communicate the following items to the committee prior to the
Company's filing of an audit report with the SEC:

- critical accounting policies and practices;

- all alternative treatments within GAAP for policies and practices
related to material items that have been discussed with management,
including the ramifications of such use and the auditors' preferred
treatment; and
1-2

- other material written communications provided to management, including
but not limited to management representation letters, reports on
internal controls, engagement letters and schedules of unadjusted
differences.

- The committee shall establish procedures for the receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters.

- The committee shall establish procedures for the confidential, anonymous
submission by employees of the Company of concerns regarding questionable
accounting or auditing matters.

- The committee shall discuss with the independent auditors the overall
scope and plans for their audits, including the adequacy of staffing and
compensation. Also, the committee shall discuss with management and the
independent auditors the adequacy and effectiveness of the Company's
internal accounting and financial controls, including the Company's
system to monitor and manage business risk, and any legal and ethical
compliance programs. Further, the committee shall meet separately with
the independent auditors, with and without management present, to discuss
the results of their examinations.

- The committee shall review and discuss with management and the
independent auditors the Company's interim financial statements prior to
the filing of the Company's Quarterly Report on Form 10-Q. Also, the
committee shall discuss the results of the quarterly review and any other
matters required to be communicated to the committee by the independent
auditors under generally accepted auditing standards. The chair or a
designated subcommittee of the committee may represent the entire
committee for purposes of this review.

- The committee shall review and discuss with management and the
independent auditors its recommendation regarding the inclusion of the
annual audited financial statements in the Company's Annual Report on
Form 10-K (or the annual report to stockholders if distributed prior to
the filing of Form 10-K). The committee also shall discuss with the
independent auditors the results of the annual audit and any other
matters required to be communicated to the committee by the independent
auditors under generally accepted auditing standards.

1-3

TRIAD GUARANTY INC.

C/O EQUISERVE TRUST COMPANY, N.A.
P.O. BOX 8694
EDISON, NJ 08818-8694

TRIAD GUARANTY INC.

101 SOUTH STRATFORD ROAD
WINSTON-SALEM, NORTH CAROLINA 27104

Dear Stockholder:

Your vote is important to us, and we encourage you to exercise your right to vote your shares
of common stock. On behalf of the Board of Directors, we urge you to sign, date, and return the
proxy card in the enclosed postage-paid envelope as soon as possible.

We appreciate your confidence in us and your cooperation with this solicitation.

Sincerely,

Triad Guaranty Inc.

DETACH HERE IF YOU ARE RETURNING YOUR PROXY CARD BY MAIL

PLEASE MARK
[X] VOTES AS IN
THIS EXAMPLE.

1. Election of Directors. --------------------------------------------------------
NOMINEES: (01) Glenn T. Austin, Jr. (02) Robert T. David, TRIAD GUARANTY INC.
(03) William T. Ratliff, III, (04) Michael A.F. Roberts, --------------------------------------------------------
(05) Richard S. Swanson, (06) Darryl W. Thompson,
(07) David W. Whitehurst
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
Marking FOR indicates voting for all listed nominees or a DIRECTORS.
substitute therefor if any nominee is unable or, for good
cause, refuses to serve. If you do not wish your shares THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE
voted "For" a particular nominee, mark the "For all nominees MANNER DIRECTED HEREIN BY THE UNDERSIGNED STOCKHOLDER.
except" box and write the name(s) of the nominee(s) on the IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR
line provided. Your shares will be voted for the remaining PROPOSAL 1. THIS PROXY IS REVOCABLE AT ANY TIME.
nominee(s).
In their discretion, the Proxies are authorized to vote
FOR WITHHELD upon such other business as may properly come before the
ALL [ ] [ ] FROM ALL meeting.
NOMINEES NOMINEES

FOR ALL
NOMINEES
EXCEPT [ ] _______________________________________

Mark the box at the right if an address change has
been noted on the reverse side of this card. [ ]

IMPORTANT: Please sign exactly as your name(s) appear(s)
to the left. In the case of joint holders, all should
sign. When signing as an attorney, executor,
administrator, trustee, or guardian, please give full
title as such. If a corporation, please sign in full
corporate name by President or other authorized officer.
If a partnership, please sign in partnership name by
authorized person.

Signature: _____________________________ Date: ________________ Signature: _____________________________ Date: ________________

DETACH HERE

TRIAD GUARANTY INC.

101 SOUTH STRATFORD ROAD
WINSTON-SALEM, NORTH CAROLINA 27104

THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS

The holder(s) signing on the reverse side hereby appoint(s) William T. Ratliff,
III and David W. Whitehurst, or either of them, as attorneys and proxies, each
with the power to appoint a substitute, and hereby authorize(s) them to
represent and to vote, as designated on the reverse side, all the shares of
Common Stock of Triad Guaranty Inc. (the "Company") held of record by such
holder(s) on April 1, 2004 at the Annual Meeting of Stockholders to be held on
May 20, 2004, or any adjournment thereof.

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PLEASE VOTE, DATE, AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY
IN THE ENCLOSED ENVELOPE.
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HAS YOUR ADDRESS CHANGED?

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