A.M. Best Affirms Credit Ratings of Members of Donegal Insurance Group and Donegal Group Inc.

A.M. Best has affirmed the Financial Strength Rating (FSR) of A (Excellent) and the Long-Term Issuer Credit Ratings (Long-Term ICR) of “a” of the members of the Donegal Insurance Group (Donegal Group). Concurrently, A.M. Best has affirmed the Long-Term ICR of “bbb” of the publicly traded holding company, Donegal Group Inc. (Delaware) (NASDAQ: DGICA and DGICB). The outlook of these Credit Ratings (ratings) is stable. (See below for a detailed listing of the member companies.)

The ratings reflect Donegal Group’s balance sheet strength, which A.M. Best categorizes as very strong, as well as its adequate operating performance, neutral business profile and appropriate enterprise risk management (ERM).

Donegal Group’s capital assessment reflects its Best’s Capital Adequacy Ratio (BCAR), which A.M. Best categorizes as strongest, and sound liquidity position, which are offset partially by increasing underwriting leverage and modestly adverse loss reserve development in recent years. 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 member supports the corporate business strategy and benefits 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.

Adequate operating performance has been demonstrated by a five-year average combined ratio, which compares favorably with the industry composite average, solid premium growth and positive pre-tax operating earnings each year over the recent five-year period. Partially offsetting these positive rating factors has been some underwriting volatility in recent years, driven by frequent and severe weather events. However, A.M. Best continues to look favorably upon the actions being taken by management to improve operating performance through rate increases and more refined underwriting standards.

Donegal Group’s neutral business profile 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.

Appropriate ERM is demonstrated through a formal risk management process, which provides assurances the organization’s key compliance, financial, strategic and operational risks are addressed in meeting organizational objectives.

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

The FSR of A (Excellent) and the Long Term 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
• Michigan Insurance Company
• Mountain States Commercial Insurance Company
• Mountain States Indemnity Company
• Peninsula Indemnity Company
• Peninsula Insurance Company
• Sheboygan Falls Insurance Company

• Southern Insurance Company of Virginia
• Southern Mutual Insurance Company

This press release relates to Credit Ratings that have been published on A.M. Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see A.M. Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Understanding Best’s Credit Ratings. For information on the proper media use of Best’s Credit Ratings and A.M. Best press releases, please view Guide for Media - Proper Use of Best’s Credit Ratings and A.M. Best Rating Action Press Releases.

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

Copyright © 2018 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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A.M. BestKenneth Tappen, [phone], ext. 5248Senior Financial [e-mail] Attanasio, [phone], ext. 5432Senior [e-mail] Sharkey, [phone], ext. 5159Manager, Public [e-mail] Peavy, [phone], ext. 5644Director, Public [e-mail]