A.M. Best Co. has upgraded the financial strength rating to A (Excellent) from A- (Excellent) and issuer credit rating to “a” from “a-“of Southern Mutual Insurance Company (Southern) (Athens, GA). The ratings have been removed from under review with positive implications and assigned a stable outlook.

The ratings were placed under review with positive implications on September 10, 2009 following the announcement of the affiliation between Southern and Donegal Mutual Insurance Company (Donegal). The affiliation received the approval of the Commissioner of Insurance for the State of Georgia on October 28, 2009.

The rating upgrades are supported by the quota share reinsurance agreement between Southern and Donegal, whereby Donegal assumes 100% of Southern’s current in force and future business. All business Donegal assumes from Southern will be included in its intercompany pooling agreement with Atlantic States Insurance Company, a subsidiary of Donegal Group Inc. (NASDAQ: DGICA and DGICB).

Additional supporting factors include a surplus note purchased by Donegal in the principal amount of $2.5 million in exchange for gaining board control, technology assistance and implicit support in offering additional insurance products.

A.M. Best believes Southern will benefit from having a strong parent with a recognized brand. In addition, the affiliation will allow Southern to maintain its mutual status while using Donegal’s technology platform to enhance its products and service its policyholders and agents.

The FSRs and ICRs of Donegal and its other subsidiaries are unchanged. All companies mentioned are domiciled in Marietta, PA, unless otherwise specified.

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.