Triad Guaranty Inc., a mortgage insurer that is in "run-off" mode, this week disclosed in an SEC filing that it has not been in compliance with a  second corrective order issued by its primary regulator in Illinois.

In the third quarter Triad lost $33.3 million, a slight improvement over the 3Q11 loss of $37.5 million.

In previous quarters the company revealed it was unlikely to meet current and future policyholder obligations unless the economy and the housing market improved.

On Aug. 31, Triad told the Illinois Department of Insurance it was in violation of the second corrective order the regulator issued in regard to its deferred payment obligation. At Sept. 30, the recorded DPO, including accrued interest of $45.7 million, amounted to $765 million, which exceeded Triad’s cash and invested assets.

Triad had asked its regulator to amend the second corrective order and Illinois DOI held a public hearing on Sept. 10.

Besides taking testimony on Triad’s request, DOI invited Triad and its policyholders to provide testimony as to whether the insurer should be permitted to continue to run off its existing book of business or whether to implement a different regulatory approach, such as receivership.

The comment period runs through Nov. 30. Furthermore, the parent company has been dependent on expense reimbursements from the mortgage insurance subsidiary for funds. But a line in the 10-Q said without the reimbursement which must be approved by DOI, it will run out of cash in mid-2013 if not sooner and have to file for Chapter 11 bankruptcy protection.

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