A.M. Best Affirms Ratings of Members of Donegal Insurance Group, Michigan Insurance Company and Donegal Group Inc.

  A.M. Best Affirms Ratings of Members of Donegal Insurance Group, Michigan
  Insurance Company and Donegal Group Inc.

Business Wire

OLDWICK, N.J. -- September 17, 2013

A.M. Best Co. has affirmed the financial strength ratings (FSR) of A
(Excellent) and issuer credit ratings (ICR) of “a” of the members of the
Donegal Insurance Group (Marietta, PA) (Donegal Group) , as well as Michigan
Insurance Company (MICO) (Grand Rapids, MI). In addition, A.M. Best has
affirmed the ICR of “bbb” of the publicly traded holding company, Donegal
Group Inc. (Delaware) [NASDAQ: DGICA and DGICB]. The outlook for all ratings
is stable. (See below for a detailed listing of the member companies.)

The affirmation of the ratings of the Donegal Group members is based on
supportive risk-adjusted capitalization, sound balance sheet liquidity,
generally positive earnings and good business profile, which includes
geographic and product line diversification, effective use of technology in
the independent agency distribution channel and a history of successful
expansion through strategic acquisitions and affiliations. Although the
individual members within the Donegal Group play a specific role in the
organization’s overall business plan and their operating performances may
vary, each contributes favorably to the group’s risk-adjusted capitalization.
In addition, each of the members support the corporate business strategy and
benefit from shared senior management, intercompany reinsurance and the added
financial flexibility of Donegal Group Inc. to raise capital through debt or
equity offerings during favorable investment markets.

These positive rating factors are offset in part by the organization’s overall
less favorable operating performance over the last five years, below average
interest rates and a slightly higher expense structure. Operating performance
in recent years has been adversely impacted by more frequent and severe
weather events and lower investment yields. However, earnings improved in 2012
and through the first six months of 2013, and A.M. Best looks favorably upon
the actions being taken by management to improve operating performance through
rate increases, stronger underwriting standards and use of enterprise risk
management.

The ratings of MICO are mainly reflective of its sound capitalization,
historically favorable operating performance and the benefits it derives from
its ultimate parent, Donegal Mutual Insurance Company. These attributes are
partially offset by MICO’s concentration of risk in Michigan, above average
gross leverage and dependence on reinsurance to lower its net retained risks
to a more manageable level, compounded by a weakened economy.

The ICR of Donegal Group Inc. recognizes the overall financial strength of the
property/casualty insurance operation, its moderate amount of financial
leverage and the subordination of its creditors to the insurance companies’
policyholders.

The ratings would be further stabilized by stronger earnings, which could lead
to capital appreciation. However, the organization’s outlook may be revised to
negative and/or the ratings downgraded if capitalization significantly weakens
or a positive trend towards sustained underwriting profitability does not
develop.

The FSR of A (Excellent) and ICRs of “a” have been affirmed for the following
members of Donegal Insurance Group:

  *Atlantic States Insurance Company
  *Donegal Mutual Insurance Company
  *Le Mars Insurance Company
  *The Peninsula Insurance Company
  *Peninsula Indemnity Company
  *Sheboygan Falls Insurance Company
  *Southern Insurance Company of Virginia
  *Southern Mutual Insurance Company

The methodology used in determining these ratings is Best’s Credit Rating
Methodology, which provides a comprehensive explanation of A.M. Best’s rating
process and contains the different rating criteria employed in the rating
process. Best’s Credit Rating Methodology can be found at
www.ambest.com/ratings/methodology.

A.M. Best Company is the world's oldest and most authoritative insurance
rating and information source. For more information, visit www.ambest.com.

       Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contact:

A.M. Best Co.
Charles M. Huber, 908-439-2200, ext. 5122
Managing Senior Financial Analyst
charles.huber@ambest.com
or
Joseph Burtone, 908-439-2200, ext. 5125
Assistant Vice President
joseph.burtone@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com