911631--3/19/2010--TRIAD_GUARANTY

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{loss, insurance, financial}

{loan, real, estate}

{financial, litigation, operation}

{operation, international, foreign}

{competitive, industry, competition}

{interest, director, officer}

{regulation, government, change}

Triad is operating under two Corrective Orders issued by the Department. Failure to comply with the provisions of the Corrective Orders may result in the imposition of fines or penalties or subject Triad to further legal proceedings. There is substantial doubt about our ability to continue as a going concern. Our financial condition at December 31, 2009 has benefited substantially from significant rescission activity and denial of claims. If we do not continue to realize benefits from rescissions and denials at similar levels, or our ability to rescind or deny coverage were successfully challenged in litigation, then our financial condition and results of operations could be materially and adversely affected. Consistent with industry practice, we provide reserves only for loans in default rather than on our estimate of the ultimate loss for all insured loans. As such, our results of operations in certain periods could be disproportionately affected by the timing of reported defaults. Because a significant portion of our business is sensitive to interest rates, a large increase in rates would cause higher monthly mortgage payments for certain borrowers that could potentially lead to a greater number of defaults, which would adversely impact our business. Geographic concentration of our risk in force in certain distressed markets has resulted in increased defaults and higher risk in default from the significantly larger balances on mortgage loans in these states. Ongoing house price depreciation in these distressed markets could lead to further increases in reserves and paid claims, which could further negatively impact our financial performance. A large portion of our insurance in force consists of loans with high loan-to-value ratios, which could result in a greater number of defaults and larger claims than loans with lower loan-to-value ratios during and following periods of declining home prices. Because we generally cannot cancel mortgage insurance policies or adjust renewal premiums due to changing economic conditions, unanticipated defaults and claims could cause our financial performance to suffer significantly. Our loss experience may increase as our policies continue to age. If we failed to properly underwrite mortgage loans when we provided contract underwriting services, we may be required to provide monetary and other remedies to the customer. If our lender partners for which we have entered into captive reinsurance arrangements cannot or choose not to fulfill their financial obligations, our benefits under the captive reinsurance treaties will be limited to the trust balances maintained within the reinsurance structures, which could have an adverse impact on our future results of operations. Loan servicers have experienced a significant increase in their workload due to the rapid growth in defaults and foreclosures. If the loan servicer fails to act proactively with delinquent borrowers in an effort to avoid foreclosure, then the number of delinquent loans eventually resulting in a paid claim could increase. Triad is operating in run-off under Corrective Orders from the Department and the outlook for the legacy mortgage insurance industry remains uncertain. Maintaining experienced staff is critical to achieving a successful run-off. Loan modification and other similar programs may not provide material benefits to us.

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911631--3/19/2010--TRIAD_GUARANTY_INC