A.M. Best Co. has affirmed the financial strength rating (FSR) of A (Excellent) and issuer credit ratings (ICR) of “a” of the Donegal Insurance Group (Group) and its members. A.M. Best also has affirmed the ICR of “bbb” of Donegal Group Inc. (Donegal) [NASDAQ: DGICA]. Concurrently, A.M. Best has affirmed the FSR of A (Excellent) and ICRs of “a” of Peninsula Insurance Group (Peninsula) (Salisbury, MD) and its members. All companies are domiciled in Marietta, PA, unless otherwise specified. The outlook for all ratings is stable. (See below for a detailed list of the companies and ratings.)

The Group’s ratings are reflective of its excellent risk-adjusted capitalization, historically favorable operating performance and sustainable competitive advantage. The ratings further acknowledge management’s prudent catastrophe risk management and well-established regional market presence. Despite the unprecedented events in the global financial environment and increased weather-related activity in 2008, the Group’s operating results remained profitable with minimal investment losses.

Over the past several years, Donegal’s operating strategies have proven successful as reflected by management’s underwriting and pricing discipline, exceptional policyholder service and conservative investment philosophy. The Group maintains its competitive edge through ongoing product and technology enhancements.

To further the growth of the organization, Donegal Mutual Insurance Company (Donegal Mutual) has completed several acquisitions over the years of quality insurance companies. In 2008, Sheboygan Falls Insurance Company (Wisconsin) was added as a wholly owned subsidiary of Donegal.

To achieve greater market penetration in Georgia and South Carolina, Donegal Mutual has recently announced its affiliation with Southern Mutual Insurance Company (Southern) (Athens, GA). Donegal Mutual plans to assist Southern in offering a broader range of personal and commercial accounts taking into consideration that the products offered are generally complementary. The closing of the transaction is subject to a number of conditions, including approval by the Commissioner of Insurance of the State of Georgia. Following the close of the transaction, A.M. Best expects the Group’s ratings to remain unchanged.

Offsetting factors include the Group’s geographic concentration, which exposes its earnings and surplus to volatility from weather-related events as well as changes in the regulatory, legal and competitive market environments.

Peninsula’s rating affirmations reflect its conservative underwriting leverage and favorable operating performance derived from consistently profitable underwriting results and investment income. These strengths are partially offset by Peninsula’s geographic business concentration and narrow marketing niche.

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

• Atlantic States Insurance Company
• Donegal Mutual Insurance Company
• Southern Insurance Company of Virginia
• Le Mars Insurance Company
• Sheboygan Falls Insurance Company

The ICR of “bbb” has been affirmed for Donegal Group Inc.

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

• The Peninsula Insurance Company
• Peninsula Indemnity Company

For Best’s Credit Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

The principal methodologies used in determining these ratings, including any additional methodologies and factors that may have been considered, can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is a global full-service credit rating organization dedicated to serving the financial and health care service industries, including insurance companies, banks, hospitals and health care system providers. For more information, visit www.ambest.com.