2008-04-02 23:59:57 -

- Fitch Ratings has downgraded the following ratings on Triad Guaranty Inc. (Triad Guaranty) and its mortgage insurance subsidiary Triad Guaranty Insurance Corporation (Triad) to the following:

Triad Guaranty Insurance Corporation

--Insurer financial strength (IFS) to 'BBB-' from 'AA-'.

Triad Guaranty Inc.

--Long-term Issuer to 'BB-' from 'A-'.

--$35 million 7.9% fixed coupon senior notes

due Jan.15, 2028 to 'BB-' from 'A-'

The affected ratings remain on Rating Watch Negative, where they were originally placed on Oct. 25, 2007.

This action follows the publication of Triad Guaranty's yearend 2007 10-K filing in which the company disclosed that it has not been successful in obtaining any new capital commitments to date. The company also disclosed that it is considering placing its operating company Triad into 'run-off', and creating a newly formed mortgage insurance subsidiary that would underwrite all future business.

On Feb. 26, 2008, Fitch stated that based on a revised view of ultimate loss expectations from Triad's insured portfolio, that Triad maintained capital well below levels necessary to maintain an 'AA-' IFS rating. Moreover, Fitch stated that absent obtaining additional capital resources within a short timeframe, Triad's IFS rating would likely be downgraded below the 'A' rating category.

Today's rating actions reflects the fact that no commitments for new capital have been obtained, and that no proposals are currently being considered that involve adding additional capital to Triad. Fitch also believes Triad's possible strategy of creating a new mortgage insurance entity would be subject to significant execution risk.

Triad reported a net loss of $77.5 million for the quarter ending Dec. 31, 2007. The net loss is primarily the result of an increase in its level of reserves, which was driven by further deterioration in Triad's insured portfolio. Delinquency and loss development trends related to the 2005 through 2007 vintage years have continued on a steep upward trajectory. Additionally, the loans insured throughout most of 2007 have exhibited delinquency trends similar to or weaker than the 2006 vintage.

Partially offsetting this risk, Triad maintains sizable third-party reinsurance support in the form of excess-of-loss policies from captive reinsurance companies and other third-party reinsurance providers. As of Dec. 31, 2007, Triad's captive mortgage reinsurance providers maintained $209 million in trust capital for the benefit of Triad. Additionally, Triad maintained excess of loss reinsurance of $95 million with non-captive third-party reinsurers at Jan. 1, 2008.

As of Dec. 31, 2007, loans related to the 2005 and later vintages made up 75.7% of Triad's primary risk in force and 64.5% of its modified pool risk in force. At Dec. 31, 2007, Triad maintained $11.2 billion of primary net risk in force and $801 million of modified pool net risk in force, for a total of $12 billion of net risk in force, and its risk to capital ratio was 20.5:1. The ratio was 12.5:1 at Dec. 31, 2006.

With Triad's risk to capital ratio increasing to 20.5:1, Triad faces an increasing possibility of surpassing the regulatory maximum risk to capital ratio of about 25:1, especially if Triad's losses continue to increase due to adverse reserve development and cause further reductions in capital. Also of concern is that Triad only maintained 101% of the minimum statutory capital requirement at Dec. 31, 2007. Breaching the risk to capital ratio or minimum statutory capital requirement could ultimately cause The Department of Insurance for the State of Illinois, Triad's primary regulator, to prevent Triad from underwriting future business.

Fitch is also concerned that, as of Dec. 31, 2007, Triad was close to being in violation of one or more covenants in its $80 million bank line which greatly increases the probability that the facility would need to be repaid. Repayment of that facility could have negative consequences for the both Triad's policyholders and Triad Guaranty's debt holders. Policyholders would face losing a potential source of additional capital while repayment of the facility would significantly deplete the holding company's liquidity. Fitch believes, however, that if the facility were to be repaid, Triad Guaranty would continue to maintain sufficient liquidity to pay debt service on its long term debt for several years. Changes in holding company liquidity balances could adversely impact Triad Guaranty's debt and issuer ratings.

Triad Guaranty is a holding company that provides private mortgage insurance coverage in the United States through Triad, its wholly owned subsidiary. For Dec. 31, 2007, Triad Guaranty reported consolidated assets under Generally Accepted Accounting Principles of $1.1 billion and shareholders' equity of approximately $499 million.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Fitch Ratings, New York
Thomas J. Abruzzo, 212-908-0793
Davie Rodriguez, 212-908-0386
Ralph R. Aurora, 212-908-0528
Kenneth Reed, 212-908-0540 (Media Relations)