We will hold our annual meeting of stockholders at 10:00 a.m., local time, on Thursday, April 16, 2009,15, 2010, at our offices, 1195 River Road, Marietta, Pennsylvania 17547. At our annual meeting, our stockholders will act on the following matters:

We have fixed theThe close of business on February 27, 2009 as26, 2010 is the record date for the determination of our stockholders who are entitled to notice of, and to vote at, our annual meeting and any adjournment or postponement of our annual meeting.

We are mailinghave included our 20082009 annual report which is not part of our proxy soliciting material, to stockholders of record together with this notice.notice and the accompanying proxy statement.

It is important that you vote your shares at our annual meeting. Please submit your proxy, whether or not you expect to attend our annual meeting in person. If you attend our annual meeting and wish to voteperson, by mail, telephone or the internet as described in person, you may withdraw yourthe accompanying proxy and vote in person.materials.

The accompanyingThis proxy statement for our 2010 annual meeting and our 20082009 annual report to stockholders are availablemay be viewed on our website atwww.donegalgroup.com.

ThisOur proxy statement contains information relating to theour annual meeting of stockholders of Donegal Group Inc. to be held on Thursday, April 16, 2009,15, 2010, beginning at 10:00 a.m., local time, at our offices, 1195 River Road, Marietta, Pennsylvania 17547, and at17547. This proxy statement also relates to any adjournment or postponement of our annual meeting. We are firstcommenced the mailing thisof our proxy statement and the accompanying proxy card to our stockholders of record on or about March 16, 2009. Unless15, 2010. We will bear all of the context indicates otherwise, all referencescosts of preparing and mailing our proxy materials to our stockholders. We will, upon request, reimburse brokers, nominees, fiduciaries, custodians and other record holders for their reasonable expenses in forwarding our proxy materials to beneficial owners.

We use the following terms in this proxy statement to “we,” “us,” “our” or the “Company” refer to Donegal Group Inc. individually or collectively with its insurance subsidiaries; all references to “Donegal Mutual” refer to Donegal Mutual Insurance Company; all references to “Atlantic States” refer to Atlantic States Insurance Company; all references to “Southern” refer to Southern Insurance Company of Virginia; all references to “Le Mars” refer to Le Mars Insurance Company; all references to “Peninsula” refer to the Peninsula Insurance Group, and all references to “Sheboygan” refer to Sheboygan Falls Insurance Company.statement:

At our 2010 annual meeting, our stockholders will act upon the election of the three nominees for Class BC directors named in this proxy statement, the ratification of our audit committee’sthe selection of KPMG LLP as our independent registered public accounting firm for 20092010 and any other business that properly comes before our annual meeting or any adjournment or postponementin compliance with the advance notice and other applicable provisions of our annual meeting.by-laws. In addition, Donald H. Nikolaus, our managementpresident and chief executive officer, will report on our performance during 2008 and respond to appropriate2009. Following that report, Mr. Nikolaus will then open the floor for questions from stockholders.

You should first carefully read this proxy statement. After you have decided how you wish to vote your shares, please vote by submitting your proxy using one of the methods described below. The proxies will vote your shares as you direct. If you are a registered stockholder and attend our annual meeting, you may deliver your completed proxy card in person. “Street name” stockholders who wish to vote at our annual meeting will need to obtain a signed proxy from the nominee in whose name their shares are registered.

Our by-laws state that a quorum at our annual meeting consists of the presence in person or by proxy of the holders of a majority of the total votes entitled to be properly brought beforecast by the holders of our Class A common stock and our Class B common stock outstanding on the record date. Because Donegal Mutual owns approximately two-thirds of the voting power of our outstanding Class A common stock and Class B common stock, the presence of Donegal Mutual at our annual meeting will assure the presence of a quorum and that our stockholders will be able to conduct the business of our annual meeting.

We will pay the costs of preparing and mailing this proxy statement on behalf of ourOur board of directors. In additiondirectors unanimously recommends that you vote:

Unless you mark your proxy card to mailingthe contrary, our proxies will vote your shares for the election of the three Class C nominees for director named in this proxy statement and related materials,for the ratification of the selection of KPMG LLP.

If you are not a stockholder of record, but you are a “beneficial owner” as of February 26, 2010, which means that your name is not included in our regular officersstockholder records, you must either direct the holder of record of your shares how to vote your shares on the matters our stockholders will consider at our annual meeting or you must first obtain a form of proxy from your holder of record that you may then vote as if you were a record holder.

If you participate in Donegal Mutual’s 401(k) plan, you may vote your shares of Class A common stock and employees, who willClass B common stock credited to your 401(k) plan account as of February 26, 2010. You may vote by completing, signing and returning the proxy card that accompanies this proxy statement.

However, if you attend our annual meeting and do not receive any special compensation for doing so, may solicit proxies in person, by telephone or over the internet. Upon request,submit a ballot, we will reimburse brokers, nominees, fiduciaries, custodianscount the proxy you most recently submitted.

If your shares are not registered in your name and other persons holding shares in their names orare registered in the namesname of nominees for their reasonable expenses in sending our proxy materials to beneficial ownersa bank, broker, nominee or other holder of our stock.record, you should follow the instructions of the bank, broker, nominee or other holder of record regarding the revocation of your proxy.

The following table identifiesbelow lists each person whom we knowbelieve owns beneficially 5% or more than 5%of the outstanding shares of our Class A common stock orand our Class B common stock and states the percentage of total votes entitled to be cast by each. All information is as of February 27, 2009.26, 2010.

The following table shows the amount and percentage of our outstanding Class A common stock and our outstanding Class B common stock beneficially owned bythat each director,of our directors, each nominee for director, eachof our executive officerofficers named in the Summary Compensation Table and all of our executive officers and directors as a group beneficially owned as of February 26, 2010. The total shown for each person includes shares that the person owned jointly, in whole or in part, with the person’s spouse, or individually by the person’s spouse and shares purchasable upon the

Section 16(a) of theThe Securities Exchange Act of 1934, or the Exchange Act, requires that each of our executive officers, each of our directors and directors, as well as persons who owneach holder of 10% or more of a class of our equity securities, file reports of theirClass A common stock or our Class B common stock, report his or her ownership of our securities, as well asClass A common stock and our Class B common stock. Such persons also must file monthly statements of changes in such ownership, with us and the SEC. Based upon written representations we received from ourownership. Our executive officers, directors and 10% or greater stockholders and our reviewhave advised us that each of the statements of beneficial ownership changes our officers, directors and 10% or greater stockholders filed with us during 2008, we believe thatthem made all suchrequired filings required during 2008 were made on a timely basis.basis during 2009.

A group of local residents and business owners formed Donegal Mutual in Lancaster County, Pennsylvania in 1889 to provide property and casualty insurance.

Since 1986, Donegal Mutual and the insurance companies subsidiaries of DGI have conducted business together as the Donegal Insurance Group. During 2009, A.M. Best Company reported that the Donegal Insurance Group was organizedranked 118th among property and casualty insurance companies in 1889. the United States based on 2008 net premiums written and assigned the Donegal Insurance Group an A.M. Best rating of A (Excellent). The Donegal Insurance Group has also received the Ward’s Top 50 award for each of the last five years.

In the mid-1980s, Donegal Mutual like a number of other mutual property and casualty insurance companies, recognized the need to develop additional sources of capital and surplus to remain competitive and to have the capacity to expand its business and assure its long-term viability. Donegal Mutual again like a number of other mutual property and casualty insurance companies, determined to implement a downstream holding company structure as a strategic response. Thus, in 1986, Donegal Mutual formed us as a downstream holding company, initiallythen wholly owned by Donegal Mutual, and caused usMutual. We in turn formed Atlantic States as our wholly owned subsidiary. We then effected a public offering to form an insurance company subsidiary known as Atlantic States.

Under this pooling agreement, Donegal Mutual and Atlantic States pool substantially all of their respective premiums, losses and loss expenses. Each companyDonegal Mutual then receives an allocationcedes 80% of the pooled business. The considerationbusiness to Donegal Mutual for entering into the pooling agreement was Donegal Mutual’s ownership of majority control of our Class A common stock and Class B common stock and the expectation that Donegal Mutual’s surplus would increase over time as the value of its ownership interest in us increased.Atlantic States.

Since 1986, we have completed three public offerings. A major purpose of these offerings was to provide additional capital for Atlantic States and our other insurance subsidiaries and to fund acquisitions. As the capital of Atlantic States has increased, its underwriting capacity has increased proportionately. Thus,Therefore, as we originally planned in the mid-1980s, Atlantic States has had access tosuccessfully raised the capital necessary to support the growth of its direct business andas well as accept increases in the amount and percentageits allocation of business it assumes from the underwriting pool, withwhich has increased from an initial allocation of 35% in 1986 to an 80% allocation since March 1, 2008. The size of the underwriting pool has increased substantially. We do not anticipate any further changes in the pooling agreement between Atlantic States and Donegal Mutual. As a result,Mutual in the foreseeable future, including any change in the participation of Atlantic States in the underwriting pool has increased over the years from its initial participation of 35% in 1986 to its current participation of 80%, and the size of the underwriting pool has increased substantially.pool.

Our insurance subsidiaries and Donegal Mutual have interrelated operations. While eachSince we established our downstream holding company maintains its separate corporate existence,structure in 1986, Donegal Mutual and our insurance subsidiaries conducthave conducted business together as the Donegal Insurance Group.while maintaining their separate legal and corporate existence. As such, Donegal Mutual and our insurance subsidiaries haveshare the same business philosophy,philosophies, the same management, the same employees, and the same facilities and we offer the same types of insurance products.

In addition, as the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries haveshare a combined business plan to achieve market penetration and underwriting profitability objectives. The products offered by Donegal Mutual and our insurance subsidiaries offer are generally complementary, thereby allowing the Donegal Insurance Group to offer a broaderbroad range of products to a given market and to expand the Donegal Insurance Group’s ability to service an entire personal lines or commercial lines account. Distinctions within the products of Donegal Mutual and our insurance subsidiaries offer generally relate to the specific risk profiles targeted within similar classes of business, such as preferred tier products compared toversus standard tier products, but we and Donegal Mutual do not allocate all of the standard risk gradients are allocated to one of the companies.company. Therefore, the underwriting profitability of the business the individual companies write directly written by each of Donegal Mutual and Atlantic States will vary. However, since the underwriting pool homogenizes the risk characteristics of all business written directly by Donegal Mutual and Atlantic States are homogenized within the underwriting pool and each ofwrite directly, Donegal Mutual and Atlantic States sharesshare the underwriting results in proportion to itstheir respective participation in the underwriting pool. We realize 80% of the underwriting results of the underwriting pool because of theAtlantic States has an 80% participation of Atlantic States in the underwriting pool. The business Atlantic States derives from the underwriting pool represents the predominant percentage of our total revenues.

In April 2001, we completed a recapitalization under which werecapitalized. We effected aone-for-three reverse stock split of our Class B common stock, which has one vote per share, and issued two shares of our Class A common stock, which has one-tenth of a vote per share, as a stock dividend for each post-reverse stock split share of our Class B common stock. As a result of the reverse split and the stock dividend, each of our stockholders as of April 19, 2001 continued to own the same number of shares of our common stock, with one-third of the shares being shares of our Class B common stock and two-thirds of the shares being shares of our Class A common stock. As a result, the relative voting power orand equity interest of our then stockholders did not change.remained constant and Donegal Mutual’s continued ownership of more than a majority of the voting power of our outstanding common stock better enabled us to maintain our long-term relationship with Donegal Mutual.

We completed this recapitalization because we believed a capital structure that has more than one class of publicly traded securities offered us a number of benefits. The principal benefit wasfrom the recapitalization is our ability after the recapitalization to issue our Class A common stock or securities convertible into or exchangeable for our Class A common stock for financing, acquisition and compensation purposes without materially adversely affecting the percentagerelative voting power of any stockholder, including Donegal Mutual. At the time of the recapitalization, our board of directors recognized that the recapitalization tendedwas likely to favor longer-term investors, including Donegal Mutual, and wouldcould discourage attempts to takeacquire us, over, which our board of directors believed to be remote in any event because Donegal Mutual hascontrols more than a majority of the voting controlpower of us.our common stock.

We believe our relationshiprelationships with Donegal Mutual providessince 1986 have substantially benefited us and our stockholders and provide us and our insurance subsidiaries with a number of competitivemany advantages. We believe these advantages includinginclude the following:

We and Donegal Mutual have maintained a coordinating committee since our formation in 1986. The coordinating committee consists of two members of our board of directors, who are not also membersneither of whom is a member of Donegal Mutual’s board of directors, and two members of Donegal Mutual’s board of directors, who are not also membersneither of whom is a member of our board of directors.

The coordinating committee approval process for a new agreement between Donegal Mutual and us and any proposed change to an existing agreement between Donegal Mutual and us must first be submitted to the coordinating committee for approval. In determining whether to approve a new agreement or a change to an existing agreement between Donegal Mutual and us, our members of the coordinating committee will not approve the new agreement or the change in an existing agreement between Donegal Mutual and us unless bothone of our members believe the new agreement or the change in an existing agreement between Donegal Mutual and us is fair and equitable to us and in the best interests of our stockholders. Donegal Mutual’s members of the coordinating committee will not approve the new agreementinsurance subsidiaries or a change in such an existing agreement between Donegal Mutual and us unless both Donegal Mutual members believe the new agreement or the change in an existing agreement between Donegal Mutual and us is fair and equitable to Donegal Mutual and is in the best interests of its policyholders. If the coordinating committee unanimously approves the new agreement or the change in an existing agreement between Donegal Mutual and us, the new agreement or the change in an existing agreement is then submitted to our board of directors and to the board of directors of Donegal Mutual for their separate consideration. The new agreement or the change in anas follows: