(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

TRIAD GUARANTY INC. LOGO

TRIAD GUARANTY INC.

101 South Stratford Road, Suite 500

Winston-Salem, North Carolina 27104

NOTICE OF ANNUAL MEETING OF STOCKHOLDERS

To Be Held May 19, 2005

      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 19, 2005, at 2:00 p.m. Eastern Time, for the purpose of considering and acting upon the following matters:

      Stockholders of record as of the close of business on April 1, 2005 shall be entitled to notice of and to vote at the meeting. The transfer books will not be closed. For ten (10) 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. You may also vote your shares on the Internet or by using a toll-free telephone number (see the proxy card for complete instructions).

Winston-Salem, North Carolina

April 8, 2005

PROXY STATEMENT

TRIAD GUARANTY INC.

ANNUAL MEETING OF STOCKHOLDERS

May 19, 2005

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 19, 2005 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, 2005.

      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 sent via the Internet at http://eproxyvote.com/tgic, by subsequently voting on the Internet or by telephone, 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.

      Proxies properly submitted by mail, telephone or the Internet will be voted by the individuals named on the proxy card in the manner you indicate. 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, 2005, 14,684,645 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, 2005 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 14, 2005; and (ii) the percent of the Common Stock so owned as of that date:

      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, eleven (11) in number: (i) the total number of shares of Common Stock beneficially owned as of February 14, 2005; and (ii) the percent of the Common Stock so owned as of that date:

ELECTION OF DIRECTORS

Nominees and Directors

      At the meeting, seven (7) 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 — 51     Director since — 1993

      Darryl W. Thompson     Age — 64     Director since — 1993

      Glenn T. Austin, Jr.,     Age — 56     Director since — 2003

      David W. Whitehurst     Age — 55     Director since — 1993

      Robert T. David     Age — 66     Director since — 1993

      Michael A. F. Roberts     Age — 63     Director since — 2002

      Richard S. Swanson     Age — 55     Director since — 2003

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 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 2004, the Board of Directors met six (6) 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 (5) standing committees: the Executive Committee, the Audit Committee, the Corporate Governance and Nominating Committee, the Finance and Investment 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 2004.

      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 fourteen (14) times in 2004.

      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 (3) 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 (1) non-independent director to the Audit Committee to serve for up to two (2) 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 2004, this committee was reconstituted as the Compensation Committee from the Corporate Governance and Compensation Committee. The Compensation Committee, which is composed of Messrs. Roberts (Chairman), Austin, David and Swanson, met four (4) times in 2004. Each member of the Compensation Committee is independent under the Nasdaq rules.

      The Finance and Investment Committee reviews 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 four (4) times in 2004.

      The Corporate Governance and Nominating Committee (hereinafter the “Nominating Committee”) makes recommendations to the Board regarding corporate governance matters and oversees 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.

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:

      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 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 Compensation 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 (3) 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 Compensation Committee’s objective that incentive compensation (cash and equity awards) be a more significant component in the total executive compensation package. The Compensation 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 2004 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 2004 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 2004 were determined by the Compensation Committee.

      Mr. Ratliff is employed by Collat. During 2004, Mr. Ratliff did not receive a separate salary from the Company for his services to the Company. Triad is a party to an Administrative Services Agreement with CML, Collat and New South described elsewhere herein. During 2004, the services of Mr. Ratliff to the Company were included in charges to the Company under the Administrative Services Agreement. Effective January 1, 2005, Mr. Ratliff will be compensated directly by Triad for his services. Mr. Ratliff’s annual compensation will be determined by the Compensation Committee during the initial one-year term of the agreement and during the first quarter of each annual renewal period thereafter. Mr. Ratliff is also eligible to receive incentive compensation based upon the Compensation Committee’s evaluation of his contributions to the Company and its subsidiaries. See “Directors’ Compensation.”

      Overall executive compensation levels for 2004 were slightly higher than for 2003. Under the terms of the Company’s long-term incentive plan, overall cash bonuses and equity awards to the executive officers were also slightly higher in 2004 than in 2003.

      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 best 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 Compensation Committee’s approach to base compensation is to offer competitive salaries, consistent with the objective that base salaries be a smaller component than incentive compensation 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 Compensation Committee makes salary decisions in an annual review with input from the Chief Executive Officer. In the case of Mr. Thompson, the Compensation Committee is guided by the recommendation of the

Chairman of the Board. The Compensation 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 establishing the 2004 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 2004 average base salaries of the executive officers named in the Executive Compensation Table increased by approximately 8% in 2004.

Incentive Compensation

      The Company’s incentive compensation awards for 2004 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 Compensation 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 Compensation Committee considers the recommendations of the Company’s Chairman and President, the responsibilities of each individual, and his/her past performance and contributions to the Company and anticipated future contributions to the Company, in relationship to the Company’s overall performance. The 2004 average incentive compensation of the executive officers which appear in the Executive Compensation Table increased by approximately 20% in 2004.

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, 125% in 2003 and 139% in 2004. Awards for 2004 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 2004, 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 Compensation 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% 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 2004 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.

      The salary and incentive compensation, including cash and equity amounts, paid by the Company to its Chief Executive officer and the other four (4) most highly compensated executive officers of the Company in 2004 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.

      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 (4) most highly compensated executive officers of the Company during each of the Company’s fiscal years ended December 31, 2004, 2003 and 2002:

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 2004 fiscal year and the number and value of unexercised options

to purchase shares of Common Stock held at the end of the Company’s 2004 fiscal year by the executive officers of the Company named in the Executive Compensation Table:

Equity Compensation Plan Information

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 (2) 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 2005 under the agreements is as follows: Mr. Thompson, $275,000; Mr. Kessinger, $240,000; Mr. Wall, $165,000; Mr. Foster, $185,000 and Mr. Lard, $210,000. 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 (2) 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 (2) 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 (2) 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 (2) calendar years.

      The employment agreements contain certain noncompetition provisions restricting each executive from competing with the business of Triad for a period of two (2) 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 2004, directors who were not employees of the Company or any of its subsidiaries or affiliates received an annual retainer of $40,000 and $40,000 of restricted stock granted on the date of the annual meeting and vesting in one (1) year. Additionally, the Chairman of the Audit Committee receives $10,000 on an annual basis, members of the Audit Committee receive $5,000 on an annual basis and all other committee chairman receive $5,000 on an annual basis. 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 2004, Mr. Ratliff was awarded a cash bonus in the amount of $137,500 and 2,620 shares of restricted stock.(1)

      Messrs. Austin, David, Roberts and Swanson served on the Compensation Committee during fiscal year 2004. No member of the Compensation Committee is or was formerly an officer or employee of the Company or any of its subsidiaries.

      The Company engaged in certain transactions with CIC, CML and their affiliate New South Federal Savings Bank (“New South”) during 2004 including those described below. CIC and CML each own 17.6% 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 was a party to an investment advisory agreement with CML under which CML provided investment advice and services to Triad and assisted Triad in executing purchases and sales of investments. Under the investment advisory agreement, Triad paid CML a quarterly fee based upon the value of assets under supervision. During 2004, Triad incurred fees of $624,742 pursuant to the investment advisory agreement.

      The investment advisory and investment management services provided by CML were transitioned to an unrelated third party on December 8, 2005. Triad entered into an agreement with CML to assist Triad in the

transition of these services. Under the transition agreement, CML will monitor and provide advice and counsel regarding the investment advice and tactics of the outside advisor during the transition period. The term of the transition agreement with CML is one (1) year and CML will be compensated $25,000 per quarter or $100,000 annually for its work under the terms of the transition agreement.

      Administrative Services Agreement. Triad is a party to an administrative services agreement with CML, Collat and New South under which CML, Collat and New South provide Triad with certain management services. Under the administrative services agreement, Triad pays CML, Collat and New South an annual fee based on the estimated cost of providing the services and reimburses CML, Collat and New South for expenses related to such services. During 2004, Triad incurred fees of $124,575 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.

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, 1999 and for each year end through December 31, 2004.

      The graph assumes $100 invested on December 31, 1999 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, 2004. The Audit Committee acts pursuant to the Audit Committee Charter, a copy of which was filed as an Appendix to the Proxy Statement for the 2004 Annual Meeting of Stockholders. 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.

      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 (“E&Y”), the Company’s independent auditors. The Audit Committee has discussed with E&Y 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 E&Y 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 E&Y 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, 2004.

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 2005.

RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS

      The Company’s consolidated financial statements for the year ended December 31, 2004 were audited by 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 and for the reviews of the Company’s quarterly financial statements were $460,428 in fiscal year 2004 and $216,500 in fiscal year 2003. The increase in audit fees was a result of additional attestation services necessitated by Section 404 of the Sarbanes-Oxley Act.

Audit Related Services

      The aggregate fees, including expenses reimbursed, billed by E&Y for services related to the audit and review of the Company’s financial statements were $37,270 in fiscal year 2004 and $21,250 in fiscal year 2003. 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 $6,712 in fiscal year 2004 and $24,755 in fiscal year 2003. 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 $1,700 for fiscal year 2004 and $1,905 for fiscal year 2003. 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 2004, 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 2004 Annual Meeting of Stockholders, except for Mr. Roberts, who was out of the country.

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 2006 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, 2005. 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, 2006, 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 email by employees of the Company.

Winston-Salem, North Carolina

April 8, 2005

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. You may also vote by Internet or by telephone using the instructions on the reverse side of this card.

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

Sincerely,

Triad Guaranty Inc.

      

      

      

      

      

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, 2005, at the Annual Meeting of Stockholders to be held on May 19, 2005, or any adjournment thereof.

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