Edgar Filing: TRIAD GUARANTY INC

SCHEDULE 14A

PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )

Filed by the registrant [x]

Filed by a party other than the registrant [ ]

Check the appropriate box:

[ ] Preliminary proxy statement. [ ] Confidential, for use of the
Commission only (as permitted by
Rule 14a-6(e)(2)).

[x] Definitive proxy statement.

[ ] Definitive additional materials.

[ ] Soliciting material pursuant to Section 240.14a-12

TRIAD GUARANTY INC.
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(Name of Registrant as Specified in Its Charter)
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(Name of Person(s) Filing Proxy Statement if Other Than the Registrant)

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[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 16, 2002

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 Adam's Mark, 425 North Cherry
Street, Winston-Salem, North Carolina, on Thursday, May 16, 2002, at 2:00 p.m.
Eastern Time, for the purpose of considering and acting upon the following
matters:

1. To elect five 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, 2002 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, Suite 500, 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, 2002

PROXY STATEMENT
TRIAD GUARANTY INC.
ANNUAL MEETING OF STOCKHOLDERS
MAY 16, 2002

GENERAL INFORMATION

This proxy statement is being furnished to the stockholders of Triad
Guaranty Inc., a Delaware corporation (the "Company"), 101 South Stratford Road,
Suite 500, 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 16, 2002 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, 2002.

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
proxy committee for the election as directors of the nominees named below (or
substitutes therefor, if any nominees are unable or refuse to serve), and in its
discretion upon such matters not presently known or determined which may
properly come before the meeting.

The Company has one class of stock outstanding, Common Stock, par value
$.01 per share ("Common Stock"). On April 1, 2002, 14,079,538 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, 2002 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 1,
2002; 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)........................ 2,677,500 19.5%
Collateral Mortgage, Ltd.(4)(5)(7).......................... 2,572,500 18.7%
Salem Investment Counselors, Inc. (15)...................... 745,230 5.4%
T. Rowe Price Associates (16)............................... 809,400 5.9%
FMR Corp. (18).............................................. 900,200 6.6%

The following table shows with respect to each director and nominee for
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, ten in number: (i) the total number of shares of Common Stock
beneficially owned as of February 1, 2002; 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
------------------------ ----------------- ----------

William T. Ratliff, III(8).................................. 220,872(10)(11) 1.6%
Darryl W. Thompson.......................................... 459,344(10)(12) 3.3%
David W. Whitehurst(9)...................................... 65,106(10) *
Robert T. David............................................. 25,866(10) *
Raymond H. Elliott.......................................... 32,391(10)(13) *
Michael A. F. Roberts....................................... 0 0
John H. Williams............................................ 154,632(10)(14)(17) 1.1%
Ron D. Kessinger............................................ 43,525(10) *
Henry B. Freeman............................................ 39,846(10) *
Earl F. Wall................................................ 40,125(10) *
--------- ----
1,081,707
All directors and executive officers as a group (10 persons)
(8)(9).................................................... 1,120,887(10) 8.2%

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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 24.34% 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 29.69% 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) 1,350,000 shares of Common Stock owned by CIC are pledged to secure two
bank loans.

(7) 2,141,400 shares of Common Stock owned by CML are pledged to secure two
bank loans.

(8) Mr. William T. Ratliff, III is president and a director of CIC and
beneficially owns 27.12% of the outstanding voting capital stock of CIC.
Mr. Ratliff, III beneficially owns 7.72% 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) Mr. David W. Whitehurst is executive vice president of CIC. Accordingly,
Mr. Whitehurst may be deemed to be the beneficial owner of the shares of
Common Stock owned by CIC. The business address of Mr. Whitehurst is 1900
Crestwood Boulevard, Birmingham, Alabama 35210-2034.

(10) Includes shares of Common Stock which could be acquired through the
exercise of stock options as follows: Mr. Ratliff, III, 159,220 shares; Mr.
Thompson, 423,523 shares; Mr. Whitehurst, 51,416 shares; Mr. David, 19,866
shares; Mr. Elliott, 20,391 shares; Mr. Williams, 143,145 shares; Mr.
Freeman, 34,652 shares; Mr. Kessinger, 16,141 shares; Mr. Wall, 31,208
shares; all directors and executive officers as a group, 936,772 shares.

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

(12) Includes 1,800 shares owned by Mr. Thompson's wife.

(13) Includes 12,000 shares owned by Mr. Elliott's wife.

(14) Includes 300 shares owned by Mr. Williams' minor children.

(15) Number of shares reported on Schedule 13G filed by Salem Investment
Counselors, Inc. ("Salem") with the Securities and Exchange Commission.
Salem has sole voting power and sole dispositive power with respect to all
745,230 shares. The business address of Salem is P.O. Box 25427,
Winston-Salem, North Carolina 27114-5427.

(16) Number of shares reported on Schedule 13G filed by T. Rowe Price Associates
("Price") with the Securities and Exchange Commission. Price has sole
voting power with respect to 338,200 shares and sole dispositive power with
respect to all 809,400 shares. The business address of Price is 100 E.
Pratt Street, Baltimore, Maryland 21202.

(17) Mr. Williams retired as an executive officer of the Company at the end of
2001.

(18)Number of shares reported on Schedule 13G filed by FMR Corp. ("FMR") with
the Securities and Exchange Commission. FMR has sole voting power with
respect to 89,700 shares and sole dispositive power with respect to all
900,200 shares. The business address of FMR is 82 Devonshire Street, Boston,
Massachusetts 02109.

ELECTION OF DIRECTORS

NOMINEES AND DIRECTORS

At the meeting, five 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 except for Mr. Michael Roberts 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 Company was incorporated on August 16, 1993 for the purpose of holding
all of the outstanding stock of Triad Guaranty Insurance Corporation, an
Illinois insurance company ("Triad"), and to undertake the Company's initial
public offering.

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

WILLIAM T. RATLIFF, III Age -- 48 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") since 1990 and
was President and General Partner of Collateral Mortgage, Ltd. ("CML")
from 1987 to 1995. 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 -- 61 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.

DAVID W. WHITEHURST Age -- 52 Director since -- 1993

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 has been Chief Financial Officer of CIC since
2000. 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 -- 63 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 -- 60 Director Nominee

Mr. Roberts was an Advisory Managing Director of Salomon Smith Barney
from 1999 to 2002. Prior to that he was Head of the Firm's Insurance
Investment Banking Group since the formation of the Firm 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.

RETIRING DIRECTOR

Mr. Raymond H. Elliott is retiring after nine years of distinguished
service as a director, and is not standing for re-election at the Annual
Meeting.

THE BOARD OF DIRECTORS

The business and affairs of the Company are managed under the direction of
the Board of Directors. During 2001, the Board of Directors met five times and
acted once by written consent. 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 three standing committees, the Executive
Committee, the Audit Committee and the Compensation 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 2001.

The Audit Committee recommends to the Board of Directors the appointment of
the independent auditors for the following year. The Audit Committee also
reviews the scope of the annual audit, the annual 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. Elliott (Chairman),
David and Whitehurst, met four times in 2001.

The Compensation Committee reviews management compensation levels and
provides recommendations regarding salaries and other compensation for the
Company's officers, including bonuses, grants of stock options and other
incentive programs. The Compensation Committee serves as the committee that
administers the Company's 1993 Long-Term Stock Incentive Plan. The Compensation
Committee, which is composed of Messrs. David (Chairman) and Elliott, met five
times in 2001 and acted once by written consent.

The Company does not have a standing nominating committee of the Board of
Directors. This function is performed by the Board of Directors. 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 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 Compensation Committee's objectives include linking compensation to
improving return on equity using economic value added ("EVA") concepts. (EVA is
a registered trademark of Stern Stewart & Co.) Accordingly, beginning with the
1996 calendar year, the Compensation Committee developed certain models for
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 and
implemented for 1996. Under the EVA Program as established by the Compensation
Committee and the Board of Directors, 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. It is intended that any amounts allocated to
the bonus pool be payable to participants over a four year period, subject to
the right of the Committee to reduce or suspend any such payouts, and subject to
review of the individual participants on an annual basis. Awards under the
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 long-term objective that incentive compensation (cash and equity
awards) become 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 2001
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 and Freeman. 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 (Messrs. Ratliff and
Whitehurst are eligible to receive only incentive compensation as discussed
below). The 2001 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 2001
were determined by the Compensation Committee. During 2001, the Company and the
Committee was assisted by independent consultants regarding Company-wide
benefits, including the development of the EVA Program.

Messrs. Ratliff and Whitehurst are employed by New South or CIC and do not
receive separate salaries from the Company for their services to the Company.
Triad is party to an Administrative Services Agreement with CIC and New South
described elsewhere herein. The services of Messrs. Ratliff and Whitehurst to
the Company are charged to the Company under the Administrative Services
Agreement. The Compensation Committee believes that the terms of this agreement
are no less favorable to the Company than could be obtained from unaffiliated
third parties. Messrs. Ratliff and Whitehurst are also eligible to receive
incentive compensation based upon the Compensation Committee's evaluation of
their contributions to the Company. See "Directors' Compensation."

Overall executive compensation levels for 2001 were higher than for 2000.
Consistent with the Company's results for 2001, cash bonuses and stock option
awards to the executive officers were also higher in 2001 than in 2000.

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 long-term objective that base salaries become 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 2001 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 2001 average base salaries of the executive officers which appear in the
Executive Compensation Table increased by less than 1% in 2001.

INCENTIVE COMPENSATION

The Company's incentive compensation awards for 2001 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.

CASH AWARDS

The average cash bonus awarded to the executive officers named in the
Executive Compensation Table was 100% of their base salaries in 2000 and 130% in
2001. Awards for 2001 were made consistent with the guidelines established under
the EVA Program.

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 2001, 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 2001, the awards to all of the

executive officers were made in the form of shares of restricted stock and at
the market or premium priced options for ten years. 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 2001 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
Robert T. David, Chairman
Raymond H. Elliott

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 four most highly compensated executive officers of the
Company during each of the Company's fiscal years ended December 31, 2001, 2000
and 1999:

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

Darryl W. Thompson............ 2001 $232,183 $ 379,500 9,620 $5,250
Chief Executive 2000 232,183 287,500 47,925 5,250
Officer 1999 232,183 290,000 67,450 5,000
Ron D. Kessinger.............. 2001 180,000 285,000 7,220 5,250
Executive Vice President 2000 180,000 200,000 3,350 10,000 5,250
and Chief Financial Officer 1999 146,000 200,000 7,000 7,000 5,000
John H. Williams.............. 2001 178,120 95,000 5,250
Executive Vice President 2000 178,120 95,000 15,850 5,250
of Triad 1999 178,120 105,000 24,425 5,000
Henry B. Freeman.............. 2001 121,000 107,900 1,480 5,250
Senior Vice President 2000 121,000 105,000 5,850 5,250
of Triad 1999 121,000 112,500 8,725 5,000
Earl F. Wall.................. 2001 120,750 215,800 8,840 5,250
Senior Vice President, 2000 115,000 135,000 7,500 5,250
Secretary and 1999 100,000 131,250 10,175 5,000
General 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 Compensation Committee of
the Board -- Incentive Compensation."

(3) As a part of its 2001 incentive compensation awards, the Company in January
2002 granted 9,620 shares of restricted stock to Mr. Thompson, 7,220 shares
of restricted stock to Mr. Kessinger and 1,480 shares of restricted stock to
Mr. Freeman 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 ($39.49). One-third of the restricted shares
granted will be vested and transferable on January 1, 2003, another third
will be 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.

(4) As part of its 2000 incentive compensation awards, the Company in January
2001 granted 3,350 shares of restricted stock to Mr. Kessinger 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 ($30.00). One-third of the restricted shares became vested and
transferable on January 1, 2002, another third will be vested and
transferable on January 1, 2003, and on January 1, 2004 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 1999 incentive compensation awards, the Company in January
2000 granted 7,000 shares of restricted stock to Mr. Kessinger 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 ($21.50). One-third of the restricted shares granted became vested and
transferable on January 1, 2001, another third became vested and
transferable on January 1, 2002, and on January 1, 2003 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) 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
$39.49 per share to Mr. Wall. One-third of the options granted will be
vested and exercisable on December 31, 2002, another third will be 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 is 100% of the closing market
price of the Company's Common Stock on the date of grant.

(7) As a part of its 2000 incentive compensation awards, the Company in January
2001 granted stock options to the named executive officers to purchase
shares of Common Stock under the Company's Stock Incentive Plan in the
amounts and at the exercise prices indicated: Mr. Thompson, 47,925 shares at
$39.00 per share; Mr. Williams, 15,850 shares at $39.00 per share; Mr.
Kessinger, 10,000 shares at $30.00 per share; Mr. Freeman, 5,850 shares at
$39.00 per share; and Mr. Wall, 7,500 shares at $39.00 per share. One-third
of the options granted became vested and exercisable on December 31, 2001,
another third will be vested and exercisable on December 31, 2002, and on
December 31, 2003 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
$30.00 was the closing market price of the Company's Common Stock on the
date of grant. The exercise price of $39.00 is 130% of the closing market
price of the Company's Common Stock on the date of grant.

(8) As a part of its 1999 incentive compensation awards, the Company in January
2000 granted stock options to the named executive officers to purchase
shares of Common Stock under the Company's Stock Incentive Plan in the
amounts and at the exercise prices indicated: Mr. Thompson, 67,450 shares at
$27.95 per share; Mr. Kessinger, 7,000 shares at $21.50 per share; Mr.
Williams, 24,425 shares at $27.95 per share; Mr. Freeman, 8,725 shares at
$27.95 per share; and Mr. Wall, 10,175 shares at $27.95 per share. One-third
of the options granted became vested and exercisable on December 31, 2000,
another third became vested and exercisable on December 31, 2001, and on
December 31, 2002 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 $21.50 was the
closing market price of the Company's Common Stock on the date of grant. The
exercise price of $27.95 is 130% of the closing market price of the
Company's Common Stock on the date of grant.

(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 2001 fiscal year:

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

Darryl W. Thompson.... 47,925 29.41% $39.00 January 23, 2011 $472,862 $1,860,075
Ron D. Kessinger...... 10,000 6.14 30.00 January 23, 2011 188,667 478,122
John H. Williams...... 15,850 9.73 39.00 January 23, 2011 156,387 615,173
Henry B. Freeman...... 5,850 3.59 39.00 January 23, 2011 57,720 227,051
Earl F. Wall.......... 7,500 4.60 39.00 January 23, 2011 74,000 291,092

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

(1) All options granted under the Company's Stock Incentive Plan are
nonqualified stock options. The options were granted in January 2001. One
third of the options granted became vested and exercisable on December 31,
2001, one-third will be vested and exercisable on December 31, 2002, and
one-third will be vested and exercisable on December 31, 2003. All options
will become immediately vested and exercisable in the event of a change of
control of the Company.

(2) The option exercise price of $30.00 was the closing market price of the
Company's Common Stock on the date of grant. The option exercise price of
$39.00 is equal to 130% of the closing market price of the Company's Common
Stock on the date 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
$48.87 and $77.81, respectively (based on the grant date price of $30.00).

EMPLOYEE STOCK OPTIONS

Option Exercises. The following table sets forth certain information
regarding options to purchase shares of Common Stock exercised during the
Company's 2001 fiscal year and the number and value of unexercised options to
purchase shares of Common Stock held at the end of the Company's 2001 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........... -- -- 423,523/54,434 $8,876,986/187,067
Ron D. Kessinger............. 39,925 $1,011,964 16,141/ 9,001 73,602/ 76,275
John H. Williams............. 127,650 4,036,980 143,144/18,710 2,363,854/ 67,750
Henry B. Freeman............. 33,000 1,023,517 34,653/ 6,809 546,177/ 24,203
Earl F. Wall................. -- -- 31,207/ 8,393 346,687/ 28,230

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

(1) Value of unexercised options is equal to the difference between the fair
market value per share of Common Stock at December 31, 2001 and the option
exercise price per share multiplied by the number of shares subject to
options.

EMPLOYMENT AGREEMENTS

In October 1993, the Company, through its wholly-owned subsidiary Triad,
entered into employment agreements with Messrs. Thompson, Kessinger and Freeman.
These agreements had initial terms of two years and upon expiration extend
automatically for successive one-year terms unless terminated by either party.
Base annual salary for 2002 under the agreements is as follows: Mr. Thompson,
$244,000; Mr. Kessinger, $185,400; and Mr. Freeman, $121,000. 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 his 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 and Kessinger, to 200% of the total base annual salary paid to such
executive during the two previous calendar years and, in the case of Mr.
Freeman, 160% of the total base annual salary paid to such executive during the
previous calendar year.

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
and Kessinger, to 200% of the total base annual salary paid to such executive
during the two previous calendar years and, in the case of Mr. Freeman, 160% of
the total base annual salary paid to such executive during the previous calendar
year.

The employment agreements contain certain noncompetition provisions
restricting each executive from competing with the business of Triad for a
period of two years, in the case of Messrs. Thompson and Kessinger, and one
year, in the case of Mr. Freeman, following termination of his employment.

DIRECTORS' COMPENSATION

Directors who are employees of the Company or any of its subsidiaries do
not receive any compensation for serving as directors of the Company. For 2001,
directors who were not employees of the Company or any of its
12

subsidiaries or affiliates received an annual retainer of $30,000 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. In addition, Messrs. Ratliff and
Whitehurst are eligible to receive incentive compensation based upon the
Compensation Committee's evaluation of their contributions to the Company. For
2001, Messrs. Ratliff and Whitehurst were awarded cash bonuses in the amount of
$120,000 and $40,000, respectively, and Mr. Ratliff was awarded 3,040 shares of
restricted stock and Mr. Whitehurst stock options to purchase 3,040 shares of
Common Stock at $39.49 per share.(1) All directors are reimbursed for expenses
incurred in attending board meetings.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

The Compensation Committee is composed of Messrs. David and Elliott.
Neither 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
affiliates New South Federal Savings Bank and Southland National Insurance Corp.
("Southland") during 2001 including those described below. CIC and CML own 19.5%
and 18.7%, respectively, 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. Mr.
Whitehurst, a director of the Company, is Executive Vice President of CIC. All
transactions between the Company and CIC, CML, New South or Southland have been,
and will be, on terms no less favorable to the Company than could have been, or
than could be, 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 2001, Triad incurred fees of $333,167
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 2001, Triad incurred fees of $100,000
pursuant to the administrative services agreement.

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

(1) One-third of the options granted will be vested and exercisable on December
31, 2002, another third will be 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 is the closing market price of the Company's Common Stock on the date
of grant.
13

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, 2001.

[PERFORMANCE GRAPH]

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

Triad Guaranty
Inc............... 101.56 79.69 165.62 269.52 543.73 413.66 426.55 621.07 680.04
--------------------------------------------------------------------------------------------------------
NASDAQ Stock Market
(U.S.)............ 99.70 97.54 137.78 169.50 207.60 292.69 543.91 327.15 259.59
--------------------------------------------------------------------------------------------------------
NASDAQ Finance
Stocks............ 98.79 99.10 144.38 185.34 283.43 275.36 273.53 295.43 324.98
--------------------------------------------------------------------------------------------------------
NASDAQ Insurance
Stocks............ 94.72 89.16 126.65 144.36 211.83 188.73 146.40 183.84 196.67
--------------------------------------------------------------------------------------------------------

The graph assumes $100 invested on October 22, 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,
2001. The Audit Committee acts pursuant to the Audit Committee Charter, a copy
of which is attached as Appendix "1" to the Company's 2001 Proxy Statement.

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, 2001.

INDEPENDENCE

The Audit Committee Charter provides that the Audit Committee shall consist
of at least three directors, each of whom, in the opinion of the Board of
Directors, has no relationship which would interfere with the exercise of
independent judgment as a director. The Charter further provides that subject to
the applicable rules of the National Association of Securities Dealers ("NASD"),
a director who is not "independent" as defined under the NASD rules may be
appointed to the Audit Committee if the Board of Directors determines that such
appointment is in the best interests of the Company and its stockholders.

Two of the members of the Audit Committee, Messrs. Elliott and David, are
independent under the NASD rules. The third member, Mr. Whitehurst, is not
independent under the NASD rules because he has been employed by CIC, an
affiliate of the Company, for the current year, and has received compensation
from the Company and its affiliates in excess of $60,000 during the previous
fiscal year. The NASD rules permit the Company to appoint one non-independent
director to the Audit Committee 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.

SELECTION OF INDEPENDENT AUDITORS

The Audit Committee has recommended to the Board the selection of Ernst &
Young LLP as the Company's independent auditors for fiscal year 2002.

AUDIT COMMITTEE
Raymond H. Elliott, Chairman
Robert T. David
David W. Whitehurst

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

The Company's consolidated financial statements for the year ended December
31, 2001 were audited by Ernst & Young LLP, independent auditors. Ernst & Young
LLP has been selected as the Company's independent auditors for fiscal year
2002. Representatives of Ernst & Young LLP 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 Ernst & Young
LLP for professional services rendered for the audit of the consolidated
financial statements of the Company and its subsidiaries for fiscal year 2001,
the reviews of the Company's quarterly financial statements during fiscal year
2001 and audit related services were $152,800.

ALL OTHER FEES

The aggregate fees, including expenses reimbursed, billed by Ernst & Young
LLP for services rendered to the Company and its subsidiaries, other than the
services described above, for fiscal year 2001 were $140,848. The Audit
Committee has considered whether the provision of the non-audit services
provided by Ernst & Young LLP to the Company is compatible with maintaining
Ernst & Young LLP's independence.

STOCKHOLDER PROPOSALS FOR 2003 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 10, 2002. 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 23, 2003, 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 regular employees of the
Company.

Winston-Salem, North Carolina
April 8, 2002

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, 2002 at the Annual Meeting of Stockholders to be held on
May 16, 2002, or any adjournment thereof.

-----------------------------------------------------------------------------
PLEASE VOTE, DATE, AND SIGN ON REVERSE SIDE AND
RETURN PROMPTLY IN THE ENCLOSED ENVELOPE.
-----------------------------------------------------------------------------

HAS YOUR ADDRESS CHANGED?

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

TRIAD GUARANTY INC.

C/O EQUISERVE
P.O. BOX 43068
PROVIDENCE, RI 02940

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

[X] PLEASE MARK
VOTES AS IN
THIS EXAMPLE.

1. Election of Directors. --------------------------------
NOMINEES: (01) Robert T. David, TRIAD GUARANTY INC.
(02) William T. Ratliff, III, --------------------------------
(03) Michael A.F. Roberts,
(04) Darryl W. Thompson, THIS PROXY IS SOLICITED ON BEHALF
(05) David W. Whitehurst OF THE BOARD OF DIRECTORS.

Marking FOR indicates voting for all THIS PROXY, WHEN PROPERLY
listed nominees or a substitute therefor EXECUTED, WILL BE VOTED IN THE
if any nominee is unable or, for good MANNER DIRECTED HEREIN BY THE
cause, refuses to serve. If you do not UNDERSIGNED STOCKHOLDER. IF NO
wish your shares voted "For" a particular DIRECTION IS MADE, THIS PROXY
nominee, mark the "For all nominees WILL BE VOTED FOR PROPOSAL 1.
except" box and write the name(s) of the THIS PROXY IS REVOCABLE AT ANY
nominee(s) on the line provided. Your TIME.
shares will be voted for the remaining
nominee(s). In their discretion, the Proxies
FOR [ ] [ ] WITHHELD are authorized to vote upon such
ALL FROM ALL other business as may properly come
NOMINEES NOMINEES before the meeting.

FOR ALL [ ]
NOMINEES ----------------------------
EXCEPT

Mark box at 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:
----------------- -------- ----------------- --------