Troubled mortgage insurer Triad Guaranty Inc. (TGIC) is notifying its lender customers that by regulator order, they will get only partial payments of their claims beginning as soon as June 1.

"We are making a concerted effort to reach out to our major policyholders to make sure they understand the order," said Ken Jones, Triad's chief executive, in an emailed message.

Under an order issued by Illinois' top insurance regulator Wednesday, Triad will begin paying only 60% of mortgage insurance claims in cash on June 1 or a later date as determined by the regulator, with 40% of the claim going to a deferred-payment obligation, or DPO.

Government-sponsored mortgage holders Fannie Mae (FNM) and Freddie Mac (FRE) represent over half of Triad's $17 billion of risk in force. Bank of America Corp. (BAC) and Wells Fargo & Co. (WFC) are Triad's largest private-lender customers.

Jones said the company does not disclose detail on its risk in force by customer.

As to whether lenders will need to write down the value of their mortgage insurance in their own books, "that will be the individual lender decision and I am not aware of their plans," Jones said via email.

When a borrower defaults on a mortgage, the lender initiates a claim on its mortgage insurance policy, which generally covers up to 20% of the loan due.

The DPO will be represented by a separate entry in Triad's financial statements and will accrue a carrying charge based on the investment yield earned by Triad's investment portfolio. Payments of the carrying charge and DPO will be subject to Triad's future financial performance and will require approval of the Illinois official.

Triad's subsidiary, Triad Guaranty Insurance Corp., stopped writing mortgage insurance policies July 15 and the company has been in runoff since then.

Jones also said that the company's ongoing dispute with an insurance carrier over an approximately $90 million excess and surplus loss coverage is currently in arbitration. He declined to name the insurer. In its annual report, Triad said an arbitration decision is expected in the second quarter.

Triad's shares recently traded up 16% to 29 cents.

-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141; lavonne.kuykendall@dowjones.com

(Kathy Shwiff contributed to this report.)