10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2014

OR

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

Commission file number 0-15341

Donegal Group Inc.

(Exact name of registrant as specified in its charter)

Delaware	23-2424711
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1195 River Road, P.O. Box 302, Marietta, PA 17547

(Address of principal executive offices) (Zip code)

(717) 426-1931

(Registrant’s telephone number, including area code)

Not applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 21,355,557 shares of Class A Common Stock, par value $0.01 per share, and 5,576,775 shares of Class B Common Stock, par value $0.01 per share, outstanding on November 1, 2014.

DONEGAL GROUP INC.

INDEX TO FORM 10-Q REPORT

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements		1
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		19
Item 3.	Quantitative and Qualitative Disclosures about Market Risk		28
Item 4.	Controls and Procedures		28
Item 4T.	Controls and Procedures		28
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings		29
Item 1A.	Risk Factors		29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		29
Item 3.	Defaults upon Senior Securities		29
Item 4.	Removed and Reserved		29
Item 5.	Other Information		29
Item 6.	Exhibits		30
Signatures			31

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements.

Donegal Group Inc. and Subsidiaries

Consolidated Balance Sheets

	September 30, 2014			December 31, 2013
	(Unaudited)
Assets
Investments
Fixed maturities
Held to maturity, at amortized cost	$	308,941,155		$	240,370,277
Available for sale, at fair value		431,621,301			403,651,965
Equity securities, available for sale, at fair value		30,087,270			12,422,837
Investments in affiliates		38,837,543			35,685,433
Short-term investments, at cost, which approximates fair value		16,432,960			99,677,795
Total investments		825,920,229			791,808,307
Cash		30,997,755			27,636,416
Accrued investment income		6,284,941			5,423,531
Premiums receivable		139,566,959			123,904,629
Reinsurance receivable		251,811,903			244,239,113
Deferred policy acquisition costs		49,081,580			43,627,510
Deferred tax asset, net		17,286,666			20,310,558
Prepaid reinsurance premiums		121,161,774			112,663,942
Property and equipment, net		7,698,400			6,424,703
Accounts receivable - securities		—			1,187,866
Federal income taxes recoverable		—			420,952
Goodwill		5,625,354			5,625,354
Other intangible assets		958,010			958,010
Other		1,328,821			1,179,611
Total assets	$	1,457,722,392		$	1,385,410,502
Liabilities and Stockholders’ Equity
Liabilities
Unpaid losses and loss expenses	$	520,102,584		$	495,619,269
Unearned premiums		422,802,436			382,734,642
Accrued expenses		16,961,029			19,265,097
Reinsurance balances payable		10,444,913			17,948,808
Borrowings under lines of credit		56,000,000			58,000,000
Cash dividends declared		—			3,299,182
Subordinated debentures		5,000,000			5,000,000
Accounts payable - securities		5,254,305			751,641
Federal income taxes payable		1,000,264			—
Due to affiliate		248,500			2,170,225
Drafts payable		2,438,214			1,386,285
Other		2,526,234			2,358,242
Total liabilities		1,042,778,479			988,533,391
Stockholders’ Equity
Preferred stock, $.01 par value, authorized 2,000,000 shares; none issued		—			—
Class A common stock, $.01 par value, authorized 40,000,000 shares, issued 22,255,031 and 21,786,765 shares and outstanding 21,313,323 and 20,845,903 shares		222,551			217,868
Class B common stock, $.01 par value, authorized 10,000,000 shares, issued 5,649,240 shares and outstanding 5,576,775 shares		56,492			56,492
Additional paid-in capital		197,753,459			189,116,410
Accumulated other comprehensive income (loss)		4,222,095			(2,312,890	)
Retained earnings		225,790,998			222,888,887
Treasury stock		(13,101,682	)		(13,089,656	)
Total stockholders’ equity		414,943,913			396,877,111
Total liabilities and stockholders’ equity	$	1,457,722,392		$	1,385,410,502

See accompanying notes to consolidated financial statements.

1

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Three Months Ended September 30,
	2014		2013
Revenues:
Net premiums earned	$	142,149,561	$	130,645,011
Investment income, net of investment expenses		4,299,044		4,624,287
Net realized investment gains (includes $351,269 and $349,164 accumulated other comprehensive income reclassifications)		351,269		349,164
Lease income		217,144		212,581
Installment payment fees		1,641,459		1,768,537
Equity in earnings of Donegal Financial Services Corporation		476,906		735,380
Total revenues		149,135,383		138,334,960
Expenses:
Net losses and loss expenses		91,003,905		84,882,734
Amortization of deferred policy acquisition costs		22,889,000		20,766,000
Other underwriting expenses		22,795,149		21,454,770
Policyholder dividends		933,910		456,675
Interest		368,417		431,899
Other expenses		531,178		828,674
Total expenses		138,521,559		128,820,752
Income before income tax expense		10,613,824		9,514,208
Income tax expense (includes $119,431 and $118,715 income tax expense from reclassification items)		1,865,113		1,860,474
Net income	$	8,748,711	$	7,653,734
Earnings per common share:
Class A common stock - basic and diluted	$	0.33	$	0.30
Class B common stock - basic and diluted	$	0.30	$	0.27

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Three Months Ended September 30,
	2014			2013
Net income	$	8,748,711		$	7,653,734
Other comprehensive loss, net of tax
Unrealized loss on securities:
Unrealized holding loss during the period, net of income tax benefit of $246,339 and $638,094		(447,448	)		(1,175,052	)
Reclassification adjustment for gains included in net income, net of income tax expense of $119,431 and $118,715		(231,838	)		(230,449	)
Other comprehensive loss		(679,286	)		(1,405,501	)
Comprehensive income	$	8,069,425		$	6,248,233

See accompanying notes to consolidated financial statements.

2

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Income

(Unaudited)

	Nine Months Ended September 30,
	2014		2013
Revenues:
Net premiums earned	$	412,286,978	$	382,310,380
Investment income, net of investment expenses		13,529,304		14,110,288
Net realized investment gains (includes $2,296,909 and $2,943,710 accumulated other comprehensive income reclassifications)		2,296,909		2,943,710
Lease income		643,726		638,535
Installment payment fees		4,964,708		5,212,420
Equity in earnings of Donegal Financial Services Corporation		1,234,773		2,499,854
Total revenues		434,956,398		407,715,187
Expenses:
Net losses and loss expenses		286,523,746		259,935,100
Amortization of deferred policy acquisition costs		66,233,000		60,236,000
Other underwriting expenses		64,800,475		61,335,688
Policyholder dividends		1,935,660		1,272,530
Interest		1,177,034		1,252,747
Other expenses		2,145,963		3,223,467
Total expenses		422,815,878		387,255,532
Income before income tax expense		12,140,520		20,459,655
Income tax expense (includes $780,949 and $1,000,861 income tax expense from reclassification items)		2,087,553		3,701,498
Net income	$	10,052,967	$	16,758,157
Earnings per common share:
Class A common stock - basic	$	0.39	$	0.66
Class A common stock - diluted	$	0.38	$	0.65
Class B common stock - basic and diluted	$	0.35	$	0.60

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(Unaudited)

	Nine Months Ended September 30,
	2014			2013
Net income	$	10,052,967		$	16,758,157
Other comprehensive income (loss), net of tax
Unrealized gain (loss) on securities:
Unrealized holding income (loss) during the period, net of income tax expense (benefit) of $4,299,787 and ($13,782,319)		8,050,945			(25,511,627	)
Reclassification adjustment for gains included in net income, net of income tax expense of $780,949 and $1,000,861		(1,515,960	)		(1,942,849	)
Other comprehensive income (loss)		6,534,985			(27,454,476	)
Comprehensive income (loss)	$	16,587,952		$	(10,696,319	)

See accompanying notes to consolidated financial statements.

3

Donegal Group Inc. and Subsidiaries

Consolidated Statement of Stockholders’ Equity

(Unaudited)

Nine Months Ended September 30, 2014

	Class A Shares		Class B Shares		Class A Amount		Class B Amount		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Retained Earnings			Treasury Stock			Total Stockholders’ Equity
Balance, December 31, 2013		21,786,765		5,649,240	$	217,868	$	56,492	$	189,116,410	$	(2,312,890	)	$	222,888,887		$	(13,089,656	)	$	396,877,111
Issuance of common stock (stock compensation plans)		468,266		—		4,683		—		8,065,021		—			—			—			8,069,704
Net income		—		—		—		—		—		—			10,052,967			—			10,052,967
Cash dividends declared		—		—		—		—		—		—			(6,820,219	)		—			(6,820,219	)
Grant of stock options		—		—		—		—		330,637		—			(330,637	)		—			—
Tax benefit on exercise of stock options		—		—		—		—		241,391		—			—			—			241,391
Repurchase of treasury shares		—		—		—		—		—		—			—			(12,026	)		(12,026	)
Other comprehensive income		—		—		—		—		—		6,534,985			—			—			6,534,985
Balance, September 30, 2014		22,255,031		5,649,240	$	222,551	$	56,492	$	197,753,459	$	4,222,095		$	225,790,998		$	(13,101,682	)	$	414,943,913

See accompanying notes to consolidated financial statements.

4

Donegal Group Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
	2014			2013
Cash Flows from Operating Activities:
Net income	$	10,052,967		$	16,758,157
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		2,621,222			2,438,386
Net realized investment gains		(2,296,909	)		(2,943,710	)
Equity in earnings of Donegal Financial Services Corporation		(1,234,773	)		(2,499,854	)
Changes in assets and liabilities:
Losses and loss expenses		24,483,315			37,650,218
Unearned premiums		40,067,794			34,650,619
Premiums receivable		(15,662,330	)		(13,299,479	)
Deferred acquisition costs		(5,454,070	)		(4,479,718	)
Deferred income taxes		(494,946	)		1,990,901
Reinsurance receivable		(7,572,790	)		(26,030,466	)
Prepaid reinsurance premiums		(8,497,832	)		(7,299,921	)
Accrued investment income		(861,410	)		(161,257	)
Due to affiliate		(1,921,725	)		(4,527,389	)
Reinsurance balances payable		(7,503,895	)		596,119
Current income taxes		1,421,216			(2,355,260	)
Accrued expenses		(2,304,068	)		959,651
Other, net		1,070,705			1,015,118
Net adjustments		15,859,504			15,703,958
Net cash provided by operating activities		25,912,471			32,462,115
Cash Flows from Investing Activities:
Purchases of fixed maturities, held to maturity		(100,356,105	)		—
Purchases of fixed maturities, available for sale		(61,688,801	)		(132,694,023	)
Purchases of equity securities, available for sale		(23,904,348	)		(12,605,485	)
Maturity of fixed maturities:
Held to maturity		31,852,974			11,697,169
Available for sale		22,921,683			42,631,930
Sales of fixed maturities, available for sale		22,781,515			74,570,305
Sales of equity securities, available for sale		8,436,920			8,299,617
Net purchases of property and equipment		(1,937,280	)		(617,902	)
Net decrease in investment in affiliates		—			465,000
Net sales (purchases) of short-term investments		83,244,835			(14,853,918	)
Net cash used in investing activities		(18,648,607	)		(23,107,307	)
Cash Flows from Financing Activities:
Cash dividends paid		(10,119,401	)		(9,532,789	)
Issuance of common stock		8,228,902			6,194,232
Purchase of treasury stock		(12,026	)		(60,024	)
Payments on subordinated debentures		—			(15,465,000	)
Payments on line of credit		(5,000,000	)		(9,000,000	)
Borrowings under lines of credit		3,000,000			21,500,000
Net cash used in financing activities		(3,902,525	)		(6,363,581	)
Net increase in cash		3,361,339			2,991,227
Cash at beginning of period		27,636,416			19,801,290
Cash at end of period	$	30,997,755		$	22,792,517
Cash paid during period - Interest	$	980,364		$	1,189,584
Net cash paid during period - Taxes	$	900,000		$	3,850,000

See accompanying notes to consolidated financial statements.

5

DONEGAL GROUP INC. AND SUBSIDIARIES

(Unaudited)

Notes to Consolidated Financial Statements

1 - Organization

Donegal Mutual Insurance Company (“Donegal Mutual”) organized us as an insurance holding company on August 26, 1986. Our insurance subsidiaries, Atlantic States Insurance Company (“Atlantic States”), Southern Insurance Company of Virginia (“Southern”), Le Mars Insurance Company (“Le Mars”), the Peninsula Insurance Group (“Peninsula”), which consists of Peninsula Indemnity Company and The Peninsula Insurance Company, Sheboygan Falls Insurance Company (“Sheboygan”) and Michigan Insurance Company (“MICO”), write personal and commercial lines of property and casualty coverages exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwestern, New England and Southern states. We also own 48.2% of the outstanding stock of Donegal Financial Services Corporation (“DFSC”), a grandfathered unitary savings and loan holding company that owns Union Community Bank (“UCB”), a state savings bank. UCB has 14 banking offices, all of which are located in Lancaster County, Pennsylvania. Donegal Mutual owns the remaining 51.8% of the outstanding stock of DFSC.

We have four segments: our investment function, our personal lines of insurance, our commercial lines of insurance and our investment in DFSC. The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.

At September 30, 2014, Donegal Mutual held approximately 36% of our outstanding Class A common stock and approximately 76% of our outstanding Class B common stock. This ownership provides Donegal Mutual with approximately 65% of the total voting power of our common stock. We believe Donegal Mutual’s voting control is beneficial to us for the reasons we describe in our Annual Report on Form 10-K. Our insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions. While each company maintains its separate corporate existence, our insurance subsidiaries and Donegal Mutual conduct business together as the Donegal Insurance Group. As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities and offer the same types of insurance products.

Atlantic States, our largest subsidiary, participates in a pooling agreement with Donegal Mutual. Under the pooling agreement, the two companies pool their insurance business and each company receives an allocated percentage of the pooled business. Atlantic States has an 80% share of the results of the pooled business, and Donegal Mutual has a 20% share of the results of the pooled business.

The same executive management and underwriting personnel administer products, classes of business underwritten, pricing practices and underwriting standards of Donegal Mutual and our insurance subsidiaries. In addition, as the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries share a combined business plan to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual market are generally complementary, thereby allowing the Donegal Insurance Group to offer a broader 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 generally relate to specific risk profiles targeted within similar classes of business, such as preferred tier versus standard tier products, but we do not allocate all of the standard risk gradients to one company. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, as the risk characteristics of all business Donegal Mutual and Atlantic States write directly are homogenized within the underwriting pool, Donegal Mutual and Atlantic States share the underwriting results in proportion to their respective participation in the pool. Pooled business represents the predominant percentage of the net underwriting activity of both Donegal Mutual and Atlantic States.

On February 23, 2009, our board of directors authorized a share repurchase program pursuant to which we may purchase up to 300,000 shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the Securities and Exchange Commission (the “SEC”) and in privately negotiated transactions. We purchased 846 and 4,240 shares of our Class A common stock under this program during the nine months ended September 30, 2014 and 2013, respectively. We have purchased a total of 296,778 shares of our Class A common stock under this program from its inception through September 30, 2014.

On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 additional shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the SEC and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during the nine months ended September 30, 2014 or 2013.

6

2 - Basis of Presentation

Our financial information for the interim periods included in this Form 10-Q Report is unaudited; however, such information reflects all adjustments, consisting only of normal recurring adjustments that, in the opinion of our management, are necessary for a fair presentation of our financial position, results of operations and cash flows for those interim periods. Our results of operations for the nine months ended September 30, 2014 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2014.

You should read these interim financial statements in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2013.

3 - Earnings Per Share

We have two classes of common stock, which we refer to as our Class A common stock and our Class B common stock. Our certificate of incorporation provides that whenever our board of directors declares a dividend on our Class B common stock, our board of directors shall simultaneously declare a dividend on our Class A common stock that is payable to the holders of our Class A common stock at the same time and as of the same record date at a rate that is at least 10% greater than the rate at which our board of directors declared a dividend on our Class B common stock. Accordingly, we use the two-class method to compute our earnings per common share. The two-class method is an earnings allocation formula that determines earnings per share separately for each class of common stock based on dividends we have declared and an allocation of our remaining undistributed earnings using a participation percentage that reflects the dividend rights of each class. The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net income per share for each class of our common stock:

	Three Months Ended September 30,
	2014				2013
	Class A		Class B		Class A		Class B
	(in thousands, except per share data)
Basic and diluted net income per share:
Numerator:
Allocation of net income	$	7,072	$	1,677	$	6,133	$	1,521
Denominator:
Weighted-average shares outstanding		21,175,388		5,576,775		20,383,165		5,576,775
Basic net income per share	$	0.33	$	0.30	$	0.30	$	0.27
Diluted net income per share:
Numerator:
Allocation of net income	$	7,072	$	1,677	$	6,133	$	1,521
Denominator:
Number of shares used in basic computation		21,175,388		5,576,775		20,383,165		5,576,775
Weighted-average shares effect of dilutive securities
Add: Director and employee stock options		526,260		—		224,446		—
Number of shares used in per share computations		21,701,648		5,576,775		20,607,611		5,576,775
Diluted net income per share	$	0.33	$	0.30	$	0.30	$	0.27

7

	Nine Months Ended September 30,
	2014				2013
	Class A		Class B		Class A		Class B
	(in thousands, except per share data)
Basic and diluted net income per share:
Numerator:
Allocation of net income	$	8,131	$	1,922	$	13,414	$	3,344
Denominator:
Weighted-average shares outstanding		21,004,426		5,576,775		20,246,449		5,576,775
Basic net income per share	$	0.39	$	0.35	$	0.66	$	0.60
Diluted net income per share:
Numerator:
Allocation of net income	$	8,131	$	1,922	$	13,414	$	3,344
Denominator:
Number of shares used in basic computation		21,004,426		5,576,775		20,246,449		5,576,775
Weighted-average shares effect of dilutive securities
Add: Director and employee stock options		431,762		—		305,377		—
Number of shares used in per share computations		21,436,188		5,576,775		20,551,826		5,576,775
Diluted net income per share	$	0.38	$	0.35	$	0.65	$	0.60

We did not include outstanding options to purchase the following number of shares of Class A common stock in our computation of diluted earnings per share because the exercise price of the options was greater than the average market price of our Class A common stock during the applicable period:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Number of options to purchase Class A shares excluded		2,504,333		1,559,267		2,548,500		1,209,000

4 - Reinsurance

Atlantic States and Donegal Mutual have participated in a pooling agreement since 1986 under which each company places all of its direct written premiums into the pool, and Atlantic States and Donegal Mutual then share the underwriting results of the pool in accordance with the terms of the pooling agreement. Atlantic States has an 80% share of the results of the pool, and Donegal Mutual has a 20% share of the results of the pool.

Our insurance subsidiaries and Donegal Mutual purchase certain third-party reinsurance on a combined basis. Le Mars, MICO, Peninsula and Sheboygan also purchase separate third-party reinsurance that provides coverage that we believe is commensurate with their relative size and exposures. Our insurance subsidiaries use several different reinsurers, all of which, consistent with requirements of our insurance subsidiaries and Donegal Mutual, have an A.M. Best rating of A- (Excellent) or better or, with respect to foreign reinsurers, have a financial condition that, in the opinion of our management, is equivalent to a company with at least an A- rating from A.M. Best. The following information describes the external reinsurance our insurance subsidiaries have in place for 2014:

• excess of loss reinsurance, under which losses are automatically reinsured, through a series of reinsurance agreements, over a set retention (generally $1.0 million), and

• catastrophe reinsurance, under which Donegal Mutual, Atlantic States and Southern recover, through a series of reinsurance agreements, 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention (generally $5.0 million) and after exceeding an annual aggregate deductible (generally $1.5 million) up to aggregate losses of $149.0 million per occurrence.

8

Our insurance subsidiaries and Donegal Mutual also purchase facultative reinsurance to cover exposures from losses that exceed the limits their third-party reinsurance agreements provide.

MICO maintains a quota-share reinsurance agreement with third-party reinsurers to reduce its net exposures. Effective January 1, 2014, the quota-share reinsurance percentage was 20%.

In addition to the pooling agreement and third-party reinsurance, our insurance subsidiaries have various reinsurance agreements with Donegal Mutual.

Other than the changes we discuss above, we have made no significant changes to our third-party reinsurance or the reinsurance agreements between our insurance subsidiaries and Donegal Mutual during the nine months ended September 30, 2014.

5 - Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at September 30, 2014 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	53,509	$	870	$	27	$	54,352
Obligations of states and political subdivisions		108,931		9,067		42		117,956
Corporate securities		52,171		779		227		52,723
Mortgage-backed securities		94,330		966		345		94,951
Totals	$	308,941	$	11,682	$	641	$	319,982

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	18,887	$	95	$	43	$	18,939
Obligations of states and political subdivisions		248,645		18,329		—		266,974
Corporate securities		58,209		967		41		59,135
Mortgage-backed securities		85,254		1,475		156		86,573
Fixed maturities		410,995		20,866		240		431,621
Equity securities		29,788		745		446		30,087
Totals	$	440,783	$	21,611	$	686	$	461,708

At September 30, 2014, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $280.6 million and an amortized cost of $261.4 million. Our holdings at September 30, 2014 also included special revenue bonds with an aggregate fair value of $104.3 million and an amortized cost of $96.2 million. With respect to both categories of these bonds, we held no securities of any issuer that constituted more than 10% of the category at September 30, 2014. Education bonds and water and sewer utility bonds represented 57% and 25%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at September 30, 2014. Many of the issuers of the special revenue bonds we held at September 30, 2014 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

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The amortized cost and estimated fair values of our fixed maturities and equity securities at December 31, 2013 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	47,946	$	—	$	870	$	47,076
Obligations of states and political subdivisions		108,435		465		446		108,454
Corporate securities		14,875		17		112		14,780
Mortgage-backed securities		69,114		33		667		68,480
Totals	$	240,370	$	515	$	2,095	$	238,790

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,272	$	118	$	57	$	14,333
Obligations of states and political subdivisions		265,783		11,779		15		277,547
Corporate securities		39,940		775		43		40,672
Mortgage-backed securities		70,259		923		82		71,100
Fixed maturities		390,254		13,595		197		403,652
Equity securities		12,168		348		93		12,423
Totals	$	402,422	$	13,943	$	290	$	416,075

At December 31, 2013, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $294.1 million and an amortized cost of $284.9 million. Our holdings also included special revenue bonds with an aggregate fair value of $91.9 million and an amortized cost of $89.3 million. With respect to both categories, we held no securities of any issuer that constituted more than 10% of the category at December 31, 2013. Education bonds and water and sewer utility bonds represented 56% and 23%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at December 31, 2013. Many of the issuers of the special revenue bonds we held at December 31, 2013 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

We made reclassifications from available for sale to held to maturity of fixed maturities at fair value on November 30, 2013. The following table summarizes the reclassifications by type of securities at November 30, 2013:

	Amortized Cost		Estimated Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	50,627,225	$	47,914,311
Obligations of states and political subdivisions		88,456,842		79,866,801
Corporate securities		15,745,976		14,879,294
Mortgage-backed securities		72,465,250		69,567,883
Totals	$	227,295,293	$	212,228,289

We have segregated within accumulated other comprehensive income the net unrealized losses of $15.1 million arising prior to the November 30, 2013 reclassification date for fixed maturities reclassified from available for sale to held to maturity. We will amortize this balance over the remaining life of the related securities as an adjustment to yield in a manner consistent with the accretion of discount on the same fixed maturities. During the nine months ended September 30, 2014, we recorded amortization of $945,783 in accumulated other comprehensive income. At September 30, 2014 and December 31, 2013, net unrealized losses of $14.0 million and $15.0 million, respectively, remained within accumulated other comprehensive income.

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We show below the amortized cost and estimated fair value of our fixed maturities at September 30, 2014 by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	3,621	$	3,633
Due after one year through five years		28,376		28,535
Due after five years through ten years		84,257		85,916
Due after ten years		98,357		106,947
Mortgage-backed securities		94,330		94,951
Total held to maturity	$	308,941	$	319,982
Available for sale
Due in one year or less	$	10,749	$	10,794
Due after one year through five years		67,063		68,322
Due after five years through ten years		119,805		126,944
Due after ten years		128,124		138,988
Mortgage-backed securities		85,254		86,573
Total available for sale	$	410,995	$	431,621

Gross realized gains and losses from investments before applicable income taxes were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)				(in thousands)
Gross realized gains:
Fixed maturities	$	19	$	390	$	1,367	$	2,730
Equity securities		407		352		1,059		1,093
		426		742		2,426		3,823
Gross realized losses:
Fixed maturities		33		304		34		328
Equity securities		42		89		95		551
		75		393		129		879
Net realized gains	$	351	$	349	$	2,297	$	2,944

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We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at September 30, 2014 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	15,007	$	60	$	2,254	$	10
Obligations of states and political subdivisions		8,119		42		—		—
Corporate securities		25,323		268		—		—
Mortgage-backed securities		34,106		210		13,535		291
Equity securities		8,319		446		—		—
Totals	$	90,874	$	1,026	$	15,789	$	301

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2013 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	50,803	$	822	$	4,642	$	104
Obligations of states and political subdivisions		65,171		363		13,405		99
Corporate securities		16,694		84		6,852		72
Mortgage-backed securities		72,878		536		19,014		213
Equity securities		1,629		93		—		—
Totals	$	207,175	$	1,898	$	43,913	$	488

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, we write down the investment to its fair value, and we reflect the amount of the write-down as a realized loss in our results of operations when we consider the decline in value of an individual investment to be other than temporary. We individually monitor all investments for other-than-temporary declines in value. Generally, we assume there has been an other-than-temporary decline in value if an individual equity security has depreciated in value by more than 20% of original cost and has been in such an unrealized loss position for more than six months. We held 12 equity securities that were in an unrealized loss position at September 30, 2014. Based upon our analysis of general market conditions and underlying factors impacting these equity securities, we considered these declines in value to be temporary. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize an impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, company or geographic events that have negatively impacted the value of a security and rating agency downgrades. We held 108 debt securities that were in an unrealized loss position at September 30, 2014. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

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We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute realized investment gains and losses using the specific identification method.

We amortize premiums and discounts on mortgage-backed debt securities using anticipated prepayments.

We account for investments in our affiliates using the equity method of accounting. Under this method, we record our investment at cost, with adjustments for our share of our affiliates’ earnings and losses as well as changes in the equity of our affiliates due to unrealized gains and losses. Our investments in affiliates include our 48.2% ownership interest in DFSC. We include our share of DFSC’s net income in our results of operations. We have compiled the following summary financial information for DFSC at September 30, 2014 and December 31, 2013 and for the three months and nine months ended September 30, 2014 and 2013, respectively, from the financial statements of DFSC. The financial information of DFSC at September 30, 2014 and for the three and nine months then ended is unaudited.

Balance sheets:	September 30, 2014		December 31, 2013
	(in thousands)
Total assets	$	510,549	$	512,578
Total liabilities	$	430,084	$	438,649
Stockholders’ equity		80,465		73,929
Total liabilities and stockholders’ equity	$	510,549	$	512,578

	Three Months Ended September 30,				Nine Months Ended September 30,
Income statements:	2014		2013		2014		2013
	(in thousands)				(in thousands)
Net income	$	989	$	1,525	$	2,561	$	5,184

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6 - Segment Information

We evaluate the performance of our personal lines and commercial lines segments based upon the underwriting results of our insurance subsidiaries using statutory accounting principles (“SAP”) that various state insurance departments prescribe or permit. Our management uses SAP to measure the performance of our insurance subsidiaries instead of United States generally accepted accounting principles (“GAAP”). Financial data by segment is as follows:

	Three Months Ended September 30,
	2014		2013
	(in thousands)
Revenues:
Premiums earned
Commercial lines	$	59,221	$	52,040
Personal lines		82,929		78,605
GAAP premiums earned		142,150		130,645
Net investment income		4,299		4,624
Realized investment gains		351		349
Equity in earnings of DFSC		477		735
Other		1,858		1,982
Total revenues	$	149,135	$	138,335
Income before income taxes:
Underwriting income (loss):
Commercial lines	$	2,383	$	2,537
Personal lines		1,415		(961	)
SAP underwriting income		3,798		1,576
GAAP adjustments		730		1,509
GAAP underwriting income		4,528		3,085
Net investment income		4,299		4,624
Realized investment gains		351		349
Equity in earnings of DFSC		477		735
Other		959		721
Income before income taxes	$	10,614	$	9,514

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	Nine Months Ended September 30,
	2014			2013
	(in thousands)
Revenues:
Premiums earned
Commercial lines	$	170,263		$	149,283
Personal lines		242,024			233,027
GAAP premiums earned		412,287			382,310
Net investment income		13,529			14,110
Realized investment gains		2,297			2,944
Equity in earnings of DFSC		1,235			2,500
Other		5,608			5,851
Total revenues	$	434,956		$	407,715
Income before income taxes:
Underwriting loss:
Commercial lines	$	(8,792	)	$	(2,133	)
Personal lines		(5,544	)		(4,185	)
SAP underwriting loss		(14,336	)		(6,318	)
GAAP adjustments		7,130			5,849
GAAP underwriting loss		(7,206	)		(469	)
Net investment income		13,529			14,110
Realized investment gains		2,297			2,944
Equity in earnings of DFSC		1,235			2,500
Other		2,286			1,375
Income before income taxes	$	12,141		$	20,460

7 - Borrowings

Lines of Credit

In June 2014, we renewed our existing credit agreement with Manufacturers and Traders Trust Company (“M&T”) relating to a $60.0 million unsecured, revolving line of credit. The line of credit expires in July 2017. We have the right to request a one-year extension of the credit agreement as of each anniversary date of the agreement. At September 30, 2014, we had $41.0 million in outstanding borrowings and had the ability to borrow an additional $19.0 million at interest rates equal to M&T’s current prime rate or the then current LIBOR rate plus 2.25%. The interest rate on our outstanding borrowings is adjustable quarterly. At September 30, 2014, the interest rate on our outstanding borrowings from M&T was 2.41%. We pay a fee of 0.2% per annum on the loan commitment amount regardless of usage. The credit agreement requires our compliance with certain covenants. These covenants include minimum levels of our net worth, leverage ratio, statutory surplus and the A.M. Best ratings of our insurance subsidiaries. We were in compliance with all requirements of the credit agreement during the nine months ended September 30, 2014.

MICO is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis. Through its membership, MICO has the ability to issue debt to the FHLB of Indianapolis in exchange for cash advances. MICO had no outstanding borrowings with the FHLB of Indianapolis at December 31, 2013 or September 30, 2014. The table below presents the amount of FHLB of Indianapolis stock MICO purchased, collateral pledged and assets related to MICO’s membership at September 30, 2014.

FHLB of Indianapolis stock purchased and owned as part of the agreement	$	252,100
Collateral pledged, at par (carrying value $2,467,278)		3,700,000
Borrowing capacity currently available		2,122,425

Atlantic States is a member of the FHLB of Pittsburgh. Through its membership, Atlantic States has the ability to issue debt to the FHLB of Pittsburgh in exchange for cash advances. In the first quarter of 2013, Atlantic States issued secured debt

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in the principal amount of $15.0 million to the FHLB of Pittsburgh in exchange for cash advances in the amount of $15.0 million. The interest rate on the advances was .32% at September 30, 2014. The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’ membership in the FHLB of Pittsburgh at September 30, 2014.

FHLB of Pittsburgh stock purchased and owned as part of the agreement	$	941,700
Collateral pledged, at par (carrying value $16,546,900)		20,500,000
Borrowing capacity currently available		810,756

Subordinated Debentures

In January 2002, West Bend Mutual Insurance Company (“West Bend”), the prior owner of MICO, purchased a $5.0 million surplus note from MICO at face value to increase MICO’s statutory surplus. On December 1, 2010, Donegal Mutual purchased the surplus note from West Bend at face value in connection with our acquisition of MICO. The surplus note carries an interest rate of 5.00%, and any repayment of principal or payment of interest on the surplus note requires prior approval of the Michigan Department of Insurance and Financial Services.

8 - Share–Based Compensation

We measure all share-based payments to employees, including grants of stock options, and use a fair-value-based method for the recording of related compensation expense in our consolidated statements of income. In determining the expense we record for stock options granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The significant assumptions we utilize in applying the Black-Scholes option pricing model are the risk-free interest rate, the expected term, the dividend yield and the expected volatility.

We charged compensation expense related to our stock compensation plans against income before income taxes of $494,974 and $155,069 for the three months ended September 30, 2014 and 2013, respectively, with a corresponding income tax benefit of $173,241 and $54,274, respectively. We charged compensation expense related to our stock compensation plans against income before income taxes of $1.5 million and $482,897 for the nine months ended September 30, 2014 and 2013, respectively, with a corresponding income tax benefit of $536,725 and $169,014, respectively. At September 30, 2014, we had $3.1 million of unrecognized compensation expense related to nonvested share-based compensation granted under our stock compensation plans. We expect to recognize this cost over a weighted average period of 1.7 years.

We received cash from option exercises under all stock compensation plans for the three months ended September 30, 2014 and 2013 of $3.9 million and $910,838, respectively. We received cash from option exercises under all stock compensation plans for the nine months ended September 30, 2014 and 2013 of $5.2 million and $4.5 million, respectively. We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $177,717 and $21,986 for the three months ended September 30, 2014 and 2013, respectively. We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $241,391 and $208,867 for the nine months ended September 30, 2014 and 2013, respectively.

9 - Fair Value Measurements

We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of the inputs, or assumptions, we use in the determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories:

Level 1 – quoted prices in active markets for identical assets and liabilities;

Level 2 – directly or indirectly observable inputs other than Level 1 quoted prices; and

Level 3 – unobservable inputs not corroborated by market data.

For investments that have quoted market prices in active markets, we use the quoted market price as fair value and include these investments in Level 1 of the fair value hierarchy. We classify publicly-traded equity securities as Level 1. When quoted market prices in active markets are not available, we base fair values on quoted market prices of comparable instruments or price estimates we obtain from independent pricing services and include these investments in Level 2 of the fair

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value hierarchy. We classify our fixed maturity investments as Level 2. Our fixed maturity investments consist of U.S. Treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate securities and mortgage-backed securities. We also classify a portion of our equity securities as Level 2.

We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount that could be realized if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values or obtain market quotations for substantially all of our fixed maturity and equity investments. These pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide to determine if the estimates we obtain from the pricing services are representative of fair values based upon our investment personnel’s general knowledge of the market, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel regularly monitor the market, current trading ranges for similar securities and the pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, coupon rates, security type and recent trading activity. Our investment personnel review documentation with respect to the pricing services’ pricing methodology that they obtain periodically to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. At December 31, 2013, we received one estimate per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. At September 30, 2014, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at September 30, 2014 and December 31, 2013, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

We present our cash and short-term investments at estimated fair value. We classify these items as Level 1.

The carrying values in the balance sheet for premium receivables and reinsurance receivables and payables for premiums and paid losses and loss expenses approximate their fair values. The carrying amounts we report in the balance sheet for our subordinated debentures and borrowings under lines of credit approximate their fair values. We classify these items as Level 3.

We evaluate our assets and liabilities on a recurring basis to determine the appropriate level at which to classify them for each reporting period.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at September 30, 2014:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	18,939	$	—	$	18,939	$	—
Obligations of states and political subdivisions		266,974		—		266,974		—
Corporate securities		59,135		—		59,135		—
Mortgage-backed securities		86,573		—		86,573		—
Equity securities		30,087		20,487		9,600		—
Totals	$	461,708	$	20,487	$	441,221	$	—

We did not transfer any investments between Levels 1 and 2 during the nine months ended September 30, 2014.

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The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2013:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,333	$	—	$	14,333	$	—
Obligations of states and political subdivisions		277,547		—		277,547		—
Corporate securities		40,672		—		40,672		—
Mortgage-backed securities		71,100		—		71,100		—
Equity securities		12,423		6,468		5,955		—
Totals	$	416,075	$	6,468	$	409,607	$	—

10 - Income Taxes

At September 30, 2014 and December 31, 2013, respectively, we had no material unrecognized tax benefits or accrued interest and penalties. Tax years 2011 through 2013 remained open for examination at September 30, 2014. We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of our tax asset. We established a valuation allowance of $440,778 related to a portion of the net operating loss carryforward of Le Mars at January 1, 2004. We have determined that we are not required to establish a valuation allowance for our other net deferred tax assets of $41.5 million and $39.6 million at September 30, 2014 and December 31, 2013, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and the implementation of tax planning strategies. We also have a net operating loss carryforward of $4.7 million related to Le Mars, which will begin to expire in 2020 if not previously utilized. This carryforward is subject to an annual limitation in the amount that we can use in any one year of approximately $376,000. We also have an alternative minimum tax credit carryforward of $10.0 million with an indefinite life.

11 - Impact of New Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance that requires an entity to provide information about amounts it reclassifies out of accumulated other comprehensive income. If GAAP requires an entity to reclassify amounts out of accumulated other comprehensive income to net income in their entirety in the same reporting period, the guidance requires an entity to present significant amounts it reclassifies out of accumulated other comprehensive income by the respective line items of net income, either on the face of the statement where the entity presents net income or in the notes to the entity’s financial statements,. For other amounts that GAAP does not require an entity to reclassify to net income in their entirety, the guidance requires an entity to cross-reference such amounts to other disclosures GAAP requires that provide additional detail about those amounts. The guidance was effective for interim and annual reporting periods after December 15, 2012. We adopted this new guidance as of January 1, 2013. Our adoption of this new guidance did not impact our financial position, results of operations or cash flows.

In July 2013, the FASB issued a new standard that requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward or similar tax loss or tax credit carryforward, rather than as a liability, when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law of the applicable jurisdiction and when the entity intends to use the deferred tax asset for that purpose. The new standard was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this new guidance as of January 1, 2014. Our adoption of this new standard did not impact our financial position, results of operations or cash flows.

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

We recommend that you read the following information in conjunction with the historical financial information and the footnotes to that financial information we include in this Quarterly Report on Form 10-Q. We also recommend you read Management’s Discussion and Analysis of Financial Condition and Results of Operations in our Annual Report on Form 10-K for the year ended December 31, 2013.

Critical Accounting Policies and Estimates

We combine our financial statements with those of our insurance subsidiaries and present our financial statements on a consolidated basis in accordance with GAAP.

Our insurance subsidiaries make estimates and assumptions that can have a significant effect on amounts and disclosures we report in our financial statements. The most significant estimates relate to the reserves of our insurance subsidiaries for property and casualty insurance unpaid losses and loss expenses, the valuation of investments and determination of other-than-temporary investment impairments and the policy acquisition costs of our insurance subsidiaries. While we believe our estimates and the estimates of our insurance subsidiaries are appropriate, the ultimate amounts of these liabilities may differ from the estimates we provided. We regularly review our methods for making these estimates and we reflect any adjustment we consider necessary in our current results of operations.

Liability for Unpaid Losses and Loss Expenses

Liabilities for losses and loss expenses are estimates at a given point in time of the amounts an insurer expects to pay with respect to incurred policyholder claims based on facts and circumstances the insurer then knows. At the time of establishing its estimates, an insurer recognizes that its ultimate liability for losses and loss expenses will exceed or be less than such estimates. Our insurance subsidiaries base their estimates of liabilities for losses and loss expenses on assumptions as to future loss trends, expected claims severity, judicial theories of liability and other factors. However, during the loss adjustment period, our insurance subsidiaries may learn additional facts regarding individual claims, and, consequently, it often becomes necessary for our insurance subsidiaries to refine and adjust their estimates for these liabilities. We reflect any adjustments to our insurance subsidiaries’ liabilities for losses and loss expenses in our consolidated results of operations in the period in which our insurance subsidiaries make the changes in estimates.

Our insurance subsidiaries maintain liabilities for the payment of losses and loss expenses with respect to both reported and unreported claims. Our insurance subsidiaries establish these liabilities for the purpose of covering the ultimate costs of settling all losses, including investigation and litigation costs. Our insurance subsidiaries base the amount of their liability for reported losses primarily upon a case-by-case evaluation of the type of risk involved, knowledge of the circumstances surrounding each claim and the insurance policy provisions relating to the type of loss the policyholder incurred. Our insurance subsidiaries determine the amount of their liability for unreported claims and loss expenses on the basis of historical information by line of insurance. Our insurance subsidiaries account for inflation in the reserving function through analysis of costs and trends and reviews of historical reserving results. Our insurance subsidiaries monitor their liabilities closely and recompute them periodically using new information on reported claims and a variety of statistical techniques. Our insurance subsidiaries do not discount their liabilities for losses.

Reserve estimates can change over time because of unexpected changes in assumptions related to our insurance subsidiaries’ external environment and, to a lesser extent, assumptions related to our insurance subsidiaries’ internal operations. For example, our insurance subsidiaries have experienced a decrease in claims frequency on workers’ compensation claims during the past several years while claims severity has gradually increased. These trend changes give rise to greater uncertainty as to the pattern of future loss settlements on workers’ compensation claims. Related uncertainties regarding future trends include the cost of medical technologies and procedures and changes in the utilization of medical procedures. Assumptions related to our insurance subsidiaries’ external environment include the absence of significant changes in tort law and the legal environment that increase liability exposure, consistency in judicial interpretations of insurance coverage and policy provisions and the rate of loss cost inflation. Internal assumptions include consistency in the recording of premium and loss statistics, consistency in the recording of claims, payment and case reserving methodology, accurate measurement of the impact of rate changes and changes in policy provisions, consistency in the quality and characteristics of business written within a given line of business and consistency in reinsurance coverage and collectability of reinsured losses, among other items. To the extent our insurance subsidiaries determine that underlying factors impacting their assumptions have changed, our insurance subsidiaries attempt to make appropriate adjustments for such changes in their reserves. Accordingly, our insurance subsidiaries’ ultimate liability for unpaid losses and loss expenses will likely differ from

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the amount recorded at September 30, 2014. For every 1% change in our insurance subsidiaries’ estimate for loss and loss expense reserves, net of reinsurance recoverable, the effect on our pre-tax results of operations would be approximately $2.8 million.

The establishment of appropriate liabilities is an inherently uncertain process and we can provide no assurance that our insurance subsidiaries’ ultimate liability will not exceed our insurance subsidiaries’ loss and loss expense reserves and have an adverse effect on our results of operations and financial condition. Furthermore, we cannot predict the timing, frequency and extent of adjustments to our insurance subsidiaries’ estimated future liabilities, since the historical conditions and events that serve as a basis for our insurance subsidiaries’ estimates of ultimate claim costs may change. As is the case for substantially all property and casualty insurance companies, our insurance subsidiaries have found it necessary in the past to increase their estimated future liabilities for losses and loss expenses in certain periods and, in other periods, their estimates of future liabilities have exceeded their actual liabilities. Changes in our insurance subsidiaries’ estimate of their liability for losses and loss expenses generally reflect actual payments and their evaluation of information received since the prior reporting date.

Excluding the impact of severe weather events, our insurance subsidiaries have noted stable amounts in the number of claims incurred and a slight downward trend in the number of claims outstanding at period ends relative to their premium base in recent years across most of their lines of business. However, the amount of the average claim outstanding has increased gradually over the past several years as the United States property and casualty insurance industry has experienced increased litigation trends and economic conditions that have extended the estimated length of disabilities and contributed to increased medical loss costs. We have also experienced a general slowing of settlement rates in litigated claims. Our insurance subsidiaries could have to make further adjustments to their estimates in the future. However, on the basis of our insurance subsidiaries’ internal procedures, which analyze, among other things, their prior assumptions, their experience with similar cases and historical trends such as reserving patterns, loss payments, pending levels of unpaid claims and product mix, as well as court decisions, economic conditions and public attitudes, we believe that our insurance subsidiaries have made adequate provision for their liability for losses and loss expenses.

Atlantic States’ participation in the pool with Donegal Mutual exposes it to adverse loss development on the business of Donegal Mutual that the pool includes. However, pooled business represents the predominant percentage of the net underwriting activity of both companies, and Donegal Mutual and Atlantic States proportionately share any adverse risk development of the pooled business. The business in the pool is homogeneous and each company has a pro-rata share of the entire pool. Since substantially all of the business of Atlantic States and Donegal Mutual is pooled and the results shared by each company according to its participation level under the terms of the pooling agreement, the intent of the underwriting pool is to produce a more uniform and stable underwriting result from year to year for each company than either would experience individually and to spread the risk of loss between the companies.

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Donegal Mutual and our insurance subsidiaries operate together as the Donegal Insurance Group and share a combined business plan designed to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual offer are generally complementary, thereby allowing Donegal Insurance Group to offer a broader range of products to a given market and to expand 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 generally relate to specific risk profiles targeted within similar classes of business, such as preferred tier products compared to standard tier products, but we do not allocate all of the standard risk gradients to one company. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, because the pool homogenizes the risk characteristics of all business Donegal Mutual and Atlantic States write directly and each company shares the results according to each company’s participation percentage, each company realizes its percentage share of the underwriting results of the pool. Our insurance subsidiaries’ unpaid liability for losses and loss expenses by major line of business at September 30, 2014 and December 31, 2013 consisted of the following:

	September 30, 2014		December 31, 2013
	(in thousands)
Commercial lines:
Automobile	$	39,593	$	36,017
Workers’ compensation		87,067		79,932
Commercial multi-peril		46,515		39,822
Other		2,596		2,716
Total commercial lines		175,771		158,487
Personal lines:
Automobile		86,821		92,280
Homeowners		12,107		13,367
Other		1,994		1,471
Total personal lines		100,922		107,118
Total commercial and personal lines		276,693		265,605
Plus reinsurance recoverable		243,410		230,014
Total liability for unpaid losses and loss expenses	$	520,103	$	495,619

We have evaluated the effect on our insurance subsidiaries’ unpaid loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we consider in establishing the loss and loss expense reserves of our insurance subsidiaries. We established the range of reasonably likely changes based on a review of changes in accident-year development by line of business and applied those changes to our insurance subsidiaries’ loss reserves as a whole. The selected range does not necessarily indicate what could be the potential best or worst case or the most likely scenario. The following table sets forth the estimated effect on our insurance subsidiaries’ unpaid loss and loss expense reserves and our stockholders’ equity in the event of reasonably likely changes in the variables we considered in establishing the loss and loss expense reserves of our insurance subsidiaries:

Percentage Change in Loss and Loss Expense Reserves Net of Reinsurance			Adjusted Loss and Loss Expense Reserves Net of Reinsurance at September 30, 2014		Percentage Change in Stockholders’ Equity at September 30, 2014(1)			Adjusted Loss and Loss Expense Reserves Net of Reinsurance at December 31, 2013		Percentage Change in Stockholders’ Equity at December 31, 2013(1)
(dollars in thousands)
	(10.0	)%	$	249,024		4.3	%	$	239,045		4.4	%
	(7.5	)		255,941		3.3			245,685		3.3
	(5.0	)		262,858		2.2			252,325		2.2
	(2.5	)		269,776		1.1			258,965		1.1
	Base			276,693		—			265,605		—
	2.5			283,610		(1.1	)		272,245		(1.1	)
	5.0			290,528		(2.2	)		278,885		(2.2	)
	7.5			297,445		(3.3	)		285,525		(3.3	)
	10.0			304,362		(4.3	)		292,166		(4.4	)

(1) Net of income tax effect.

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Statutory Combined Ratios

We evaluate our insurance operations by monitoring certain key measures of growth and profitability. In addition to using GAAP-based performance measurements, we also utilize certain non-GAAP financial measures that we believe are valuable in managing our business and for comparison to our peers. These non-GAAP measures are underwriting (loss) income, combined ratio and net premiums written. An insurance company’s statutory combined ratio is a standard measure of underwriting profitability. This ratio is the sum of the ratio of calendar-year incurred losses and loss expenses to premiums earned; the ratio of expenses incurred for commissions, premium taxes and underwriting expenses to net premiums written and the ratio of dividends to policyholders to premiums earned. The combined ratio does not reflect investment income, federal income taxes or other non-operating income or expense. A combined ratio of less than 100 percent generally indicates underwriting profitability. The statutory combined ratio differs from the GAAP combined ratio. In calculating the GAAP combined ratio, we do not deduct installment payment fees from incurred expenses, and we base the expense ratio on premiums earned instead of premiums written. Differences between our GAAP loss ratios reported in our financial statements and our insurance subsidiaries’ statutory loss ratios result from anticipating salvage and subrogation recoveries for the GAAP loss ratios but not for the statutory loss ratios. The following table sets forth our insurance subsidiaries’ statutory combined ratios by major line of business for the three and nine months ended September 30, 2014 and 2013:

	Three Months Ended September 30,						Nine Months Ended September 30,
	2014			2013			2014			2013
Commercial lines:
Automobile		107.2	%		109.0	%		111.9	%		103.9	%
Workers’ compensation		89.3			93.4			92.3			100.8
Commercial multi-peril		95.6			87.1			107.8			96.0
Total commercial lines		94.4			93.0			101.3			97.5
Personal lines:
Automobile		94.0			101.9			98.4			102.1
Homeowners		97.5			93.0			99.3			94.5
Other		92.7			77.5			106.3			82.8
Total personal lines		95.2			97.9			99.1			98.7
Total commercial and personal lines		95.0			96.0			100.0			98.2

Investments

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, we write down an individual investment to its fair value and we reflect the amount of the write-down as a realized loss in our results of operations when we consider the decline in value of the individual investment to be other than temporary. We individually monitor all investments for other-than-temporary declines in value. Generally, we assume there has been an other-than-temporary decline in value if an individual equity security has depreciated in value by more than 20% of its original cost and has been in such an unrealized loss position for more than six months. We held 12 equity securities that were in an unrealized loss position at September 30, 2014. Based upon our analysis of general market conditions and underlying factors impacting these equity securities, we considered these declines in value to be temporary. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize an impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect on the debt security. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, company or geographic events that have negatively impacted the value of a security or rating agency

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downgrades. We held 108 debt securities that were in an unrealized loss position at September 30, 2014. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary. We did not recognize any impairment losses in the first nine months of 2014 or 2013.

We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount we could realize if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values or obtain market quotations for substantially all of our fixed maturity and equity investments. The pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide to determine if the estimates we obtain from the pricing services are representative of fair values based upon the general market knowledge of our investment personnel, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel monitor the market and are familiar with current trading ranges for similar securities and pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, coupon rates, security type and recent trading activity. Our investment personnel review documentation with respect to the pricing services’ pricing methodology that they obtain periodically to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. At December 31, 2013, we received one estimate per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. At September 30, 2014, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at September 30, 2014 and December 31, 2013, we did not identify any material discrepancies and we did not make any adjustments to the estimates the pricing services provided.

Policy Acquisition Costs

Our insurance subsidiaries defer their policy acquisition costs, consisting primarily of commissions, premium taxes and certain other underwriting costs that relate directly to the successful acquisition of insurance policies. We amortize these costs over the period in which our insurance subsidiaries earn the related premiums. The method we follow in computing deferred policy acquisition costs limits the amount of such deferred costs to their estimated realizable value. This method gives effect to the premiums to be earned, related investment income, losses and loss expenses and certain other costs we expect to incur as our insurance subsidiaries earn the premiums.

Results of Operations - Three Months Ended September 30, 2014 Compared to Three Months Ended September 30, 2013

Net Premiums Written. Our insurance subsidiaries’ net premiums written for the three months ended September 30, 2014 were $147.8 million, an increase of $11.2 million, or 8.2%, from the $136.7 million of net premiums written for the third quarter of 2013. We primarily attribute the increase to a reduction in MICO’s external quota-share reinsurance, the impact of premium rate increases and an increase in the writing of commercial lines of business. Effective January 1, 2014, MICO reduced its external quota-share reinsurance percentage from 30% to 20%. Personal lines net premiums written increased $4.8 million, or 5.7%, for the third quarter of 2014 compared to the third quarter of 2013. The increase included $1.0 million related to the MICO reinsurance change, with the remainder of the increase attributable primarily to premium rate increases our insurance subsidiaries implemented throughout 2013 and 2014. Commercial lines net premiums written increased $6.4 million, or 12.3%, for the third quarter of 2014 compared to the third quarter of 2013. The increase included $1.3 million related to the MICO reinsurance change, with the remainder of the increase attributable to premium rate increases and increased writings of new accounts in the commercial automobile, commercial multi-peril and workers’ compensation lines of business.

Net Premiums Earned. Our insurance subsidiaries’ net premiums earned for the third quarter of 2014 were $142.1 million, an increase of $11.5 million, or 8.8%, compared to $130.6 million for the third quarter of 2013, reflecting increases in net premiums written during 2014 and 2013. Our insurance subsidiaries earn premiums and recognize them as revenue over the terms of their policies, which are one year or less in duration. Therefore, increases or decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding 12-month period compared to the comparable period one year earlier.

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Investment Income. Our net investment income was $4.3 million for the third quarter of 2014, compared to $4.6 million for the third quarter of 2013. We attribute the decrease primarily to lower average investment yields on our invested assets and an increase in expenses allocated to our investment function.

Net Realized Investment Gains. Net realized investment gains for the third quarter of 2014 were $351,269, compared to $349,164 for the third quarter of 2013. The net realized investment gains for the third quarters of 2014 and 2013 resulted primarily from strategic sales of fixed maturities and equity securities within our investment portfolio. We did not recognize any impairment losses in our investment portfolio during the third quarters of 2014 or 2013.

Equity in Earnings of DFSC. Our equity in the earnings of DFSC was $476,906 for the third quarter of 2014, compared to $735,380 for the third quarter of 2013. The decrease in DFSC’s earnings resulted from a lesser benefit from acquisition accounting adjustments during the third quarter of 2014 compared to the third quarter of 2013.

Losses and Loss Expenses. Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, for the third quarter of 2014 was 64.0%, a decrease from our insurance subsidiaries’ 65.0% loss ratio for the third quarter of 2013. On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio was 63.6% for the third quarter of 2014, comparable to 63.7% for the third quarter of 2013. The personal lines statutory loss ratio decreased to 63.6% for the third quarter of 2014 compared to 66.1% for the third quarter of 2013, primarily due to a decrease in the personal automobile loss ratio. Our insurance subsidiaries experienced unfavorable loss reserve development of approximately $2.0 million during the third quarter of 2014 in their reserves for prior accident years, compared to unfavorable loss reserve development of approximately $3.1 million during the third quarter of 2013. The change in loss reserve development patterns occurred primarily within our insurance subsidiaries’ personal automobile reserves.

Underwriting Expenses. The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned. The expense ratio of our insurance subsidiaries was 32.1% for the third quarter of 2014, relatively comparable to 32.3% for the third quarter of 2013.

Combined Ratio. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of policyholder dividends incurred to premiums earned. Our insurance subsidiaries’ combined ratio was 96.8% and 97.6% for the three months ended September 30, 2014 and 2013, respectively.

Interest Expense. Our interest expense for the third quarter of 2014 was $368,417, compared to $431,899 for the third quarter of 2013. The decrease was related to lower average borrowings during the third quarter of 2014 compared to the third quarter of 2013.

Income Taxes. Income tax expense was $1.9 million for the third quarters of 2014 and 2013, representing an effective tax rate of 17.6% and 19.6%, respectively. The effective tax rate in both periods represented an estimate based on projected annual taxable income.

Net Income and Earnings Per Share. Our net income for the third quarter of 2014 was $8.7 million, or $.33 per share of Class A common stock and $.30 per share of Class B common stock, compared to net income of $7.7 million, or $.30 per share of Class A common stock and $.27 per share of Class B common stock, for the third quarter of 2013. We had 21.3 million and 20.4 million Class A shares outstanding at September 30, 2014 and 2013, respectively. We had 5.6 million Class B shares outstanding at the end of both periods.

Results of Operations - Nine Months Ended September 30, 2014 Compared to Nine Months Ended September 30, 2013

Net Premiums Written. Our insurance subsidiaries’ net premiums written for the nine months ended September 30, 2014 were $443.9 million, an increase of $34.2 million, or 8.3%, from the $409.7 million of net premiums written for the comparable period of 2013. We primarily attribute the increase to a reduction in MICO’s external quota-share reinsurance, the impact of premium rate increases and an increase in the writing of commercial lines of business. Effective January 1, 2014, MICO reduced its external quota-share reinsurance percentage from 30% to 20%. Personal lines net premiums written increased $12.4 million, or 5.1%, for the first nine months of 2014 compared to the first nine months of 2013. The increase included $3.2 million related to the MICO reinsurance change, with the remainder of the increase attributable primarily to premium rate increases our insurance subsidiaries implemented throughout 2013 and 2014. Commercial lines net premiums written increased $21.8 million, or 13.0%, for the first nine months of 2014 compared to the first nine months of 2013. The increase included $4.4 million related to the MICO reinsurance change, with the remainder of the increase attributable to premium rate increases and increased writings of new accounts in the commercial automobile, commercial multi-peril and workers’ compensation lines of business.

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Net Premiums Earned. Our insurance subsidiaries’ net premiums earned for the first nine months of 2014 were $412.3 million, an increase of $30.0 million, or 7.8%, compared to $382.3 million for the first nine months of 2013, reflecting increases in net premiums written during 2014 and 2013. Our insurance subsidiaries earn premiums and recognize them as revenue over the terms of their policies, which are one year or less in duration. Therefore, increases or decreases in net premiums earned generally reflect increases or decreases in net premiums written in the preceding 12-month period compared to the comparable period one year earlier.

Investment Income. Our net investment income was $13.5 million for the first nine months of 2014, compared to $14.1 million for the first nine months of 2013. We attribute the decrease primarily to lower average investment yields on our invested assets.

Net Realized Investment Gains. Net realized investment gains for the first nine months of 2014 were $2.3 million, compared to $2.9 million for the first nine months of 2013. The net realized investment gains for the first nine months of 2014 and 2013 resulted primarily from strategic sales of fixed maturities and equity securities within our investment portfolio. We did not recognize any impairment losses in our investment portfolio during the first nine months of 2014 or 2013.

Equity in Earnings of DFSC. Our equity in the earnings of DFSC was $1.2 million for the first nine months of 2014, compared to $2.5 million for the first nine months of 2013. The decrease in DFSC’s earnings resulted from a reduced benefit from acquisition accounting adjustments during the first nine months of 2014 compared to the first nine months of 2013.

Losses and Loss Expenses. Our insurance subsidiaries’ loss ratio, which is the ratio of incurred losses and loss expenses to premiums earned, for the first nine months of 2014 was 69.5%, an increase from our insurance subsidiaries’ 68.0% loss ratio for the first nine months of 2013. On a statutory basis, our insurance subsidiaries’ commercial lines loss ratio increased to 71.8% for the first nine months of 2014 compared to 69.0% for the first nine months of 2013, primarily due to an increase in the commercial automobile and commercial multi-peril loss ratios. The personal lines statutory loss ratio increased to 68.1% for the first nine months of 2014 compared to 67.7% for the first nine months of 2013, primarily due to an increase in the homeowners loss ratio. We attribute the increased loss ratios primarily to an increase in weather-related losses to $37.8 million for the first nine months of 2014, compared to $24.5 million for the first nine months of 2013. Our insurance subsidiaries experienced unfavorable loss reserve development in their reserves for prior accident years of approximately $7.6 million during the first nine months of 2014, compared to unfavorable loss reserve development of approximately $9.6 million during the first nine months of 2013. The change in loss reserve development patterns occurred primarily within our insurance subsidiaries’ commercial automobile, personal automobile and commercial multi-peril reserves.

Underwriting Expenses. The expense ratio for an insurance company is the ratio of policy acquisition costs and other underwriting expenses to premiums earned. The expense ratio of our insurance subsidiaries was 31.8% for the first nine months of 2014 and 2013, respectively.

Combined Ratio. The combined ratio represents the sum of the loss ratio, the expense ratio and the dividend ratio, which is the ratio of policyholder dividends incurred to premiums earned. Our insurance subsidiaries’ combined ratio was 101.8% and 100.1% for the nine months ended September 30, 2014 and 2013, respectively.

Interest Expense. Our interest expense for the first nine months of 2014 was $1.2 million, relatively comparable to $1.3 million for the first nine months of 2013.

Income Taxes. Income tax expense was $2.1 million for the first nine months of 2014, representing an effective tax rate of 17.2%, compared to $3.7 million for the first nine months of 2013, representing an effective tax rate of 18.1%. The effective tax rate in both periods represented an estimate based on projected annual taxable income.

Net Income and Earnings Per Share. Our net income for the first nine months of 2014 was $10.1 million, or $.38 per share of Class A common stock on a diluted basis and $.35 per share of Class B common stock, compared to net income of $16.8 million, or $.65 per share of Class A common stock on a diluted basis and $.60 per share of Class B common stock, for the first nine months of 2013. We had 21.3 million and 20.4 million Class A shares outstanding at September 30, 2014 and 2013, respectively. We had 5.6 million Class B shares outstanding at the end of both periods.

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Liquidity and Capital Resources

Liquidity is a measure of an entity’s ability to secure enough cash to meet its contractual obligations and operating needs as such obligations and needs arise. Our major sources of funds from operations are the net cash flows we generate from our insurance subsidiaries’ underwriting results, investment income and investment maturities.

Our operations have historically generated sufficient net positive cash flow to fund our commitments and add to our investment portfolio, thereby increasing future investment returns and enhancing our liquidity. The impact of the pooling agreement between Donegal Mutual and Atlantic States has historically been cash-flow positive because of the consistent underwriting profitability of the pool. Donegal Mutual and Atlantic States settle their respective obligations to each other under the pool monthly, thereby resulting in cash flows substantially similar to the cash flows that would result from each company writing direct business. We have not experienced any unusual variations in the timing of claim payments associated with the loss reserves of our insurance subsidiaries. We maintain significant liquidity in our investment portfolio in the form of readily marketable fixed maturities, equity securities and short-term investments. We structure our fixed-maturity investment portfolio following a “laddering” approach, so that projected cash flows from investment income and principal maturities are evenly distributed from a timing perspective, thereby providing an additional measure of liquidity to meet our obligations should an unexpected variation occur in the future. The net cash flows our operating activities provided in the first nine months of 2014 and 2013 were $25.9 million and $32.5 million, respectively, with the decrease in cash flows in 2014 due primarily to our insurance subsidiaries’ increased claim payments during the first nine months of 2014 compared to the prior-year period.

At September 30, 2014, we had $41.0 million in outstanding borrowings under our line of credit with M&T and had the ability to borrow an additional $19.0 million at interest rates equal to M&T’s current prime rate or the then current LIBOR rate plus 2.25%. At September 30, 2014, Atlantic States had $15.0 million in outstanding advances with the FHLB of Pittsburgh. The interest rate on these advances was .32% at September 30, 2014.

The following table shows our expected payments for significant contractual obligations at September 30, 2014:

	Total		Less than 1 year		1-3 years		4-5 years		After 5 years
	(in thousands)
Net liability for unpaid losses and loss expenses of our insurance subsidiaries	$	276,693	$	128,583	$	124,642	$	11,105	$	12,363
Subordinated debentures		5,000		—		—		—		5,000
Borrowings under lines of credit		56,000		15,000		41,000		—		—
Total contractual obligations	$	337,693	$	143,583	$	165,642	$	11,105	$	17,363

We estimate the date of payment for the net liability for unpaid losses and loss expenses of our insurance subsidiaries based on historical experience and expectations of future payment patterns. We show the liability net of reinsurance recoverable on unpaid losses and loss expenses to reflect expected future cash flows related to such liability. Amounts Atlantic States assumes pursuant to the pooling agreement with Donegal Mutual represent a substantial portion of our insurance subsidiaries’ gross liability for unpaid losses and loss expenses, and amounts Atlantic States cedes pursuant to the pooling agreement represent a substantial portion of our insurance subsidiaries’ reinsurance recoverable on unpaid losses and loss expenses. We include cash settlement of Atlantic States’ assumed liability from the pool in monthly settlements of pooled activity, as we net amounts ceded to and assumed from the pool. Although Donegal Mutual and we do not anticipate any changes in the pool participation levels in the foreseeable future, any such change would be prospective in nature and therefore would not impact the timing of expected payments by Atlantic States for its percentage share of pooled losses occurring in periods prior to the effective date of such change.

We estimate the timing of the amounts for the borrowings under our lines of credit based on their contractual maturities that we discuss in Note 7 – Borrowings. The borrowings under our lines of credit carry interest rates that vary as we discuss in Note 7 – Borrowings. Based upon the interest rates in effect at September 30, 2014, our annual interest cost associated with the borrowings under our lines of credit is approximately $1.0 million. For every 1% change in the interest rate associated with the borrowings under our lines of credit, the effect on our annual interest cost would be approximately $560,000.

We estimate the timing of the amounts for the subordinated debentures based on their contractual maturity we discuss in Note 7 – Borrowings. The subordinated debentures carry an interest rate of 5%, and any repayment of principal or payment of interest on the subordinated debentures requires prior regulatory approval of the Michigan Department of Insurance and Financial Services. Our annual interest cost associated with the subordinated debentures is approximately $250,000.

26

On February 23, 2009, our board of directors authorized a share repurchase program pursuant to which we may purchase up to 300,000 shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the SEC and in privately negotiated transactions. We purchased 846 and 4,240 shares of our Class A common stock under this program during the nine months ended September 30, 2014 and 2013, respectively. We have purchased a total of 296,778 shares of our Class A common stock under this program from its inception through September 30, 2014.

On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 additional shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the SEC and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during the nine months ended September 30, 2014 or 2013.

On October 16, 2014, our board of directors declared quarterly cash dividends of 13.15 cents per share of our Class A common stock and 11.60 cents per share of our Class B common stock, payable on November 17, 2014 to our stockholders of record as of the close of business on November 3, 2014. We are not subject to any restrictions on our payment of dividends to our stockholders, although there are state law restrictions on the payment of dividends by our insurance subsidiaries to us. Dividends from our insurance subsidiaries are our principal source of cash for payment of dividends to our stockholders. Our insurance subsidiaries are subject to regulations that restrict the payment of dividends from statutory surplus and may require prior approval of their domiciliary insurance regulatory authorities. Our insurance subsidiaries are also subject to risk based capital (“RBC”) requirements that limit their ability to pay dividends to us. Our insurance subsidiaries’ statutory capital and surplus at December 31, 2013 exceeded the amount of statutory capital and surplus necessary to satisfy regulatory requirements, including the RBC requirements, by a significant margin. Our insurance subsidiaries paid $7.5 million in dividends to us during the first nine months of 2014. Amounts remaining available for distribution to us as dividends from our insurance subsidiaries without prior approval of their domiciliary insurance regulatory authorities in 2014 are $15.2 million from Atlantic States, $2.2 million from Southern, $2.8 million from Le Mars, $2.2 million from Peninsula, $1.1 million from Sheboygan and $4.1 million from MICO, or a total of approximately $27.6 million.

At September 30, 2014, we had no material commitments for capital expenditures.

Equity Price Risk

Our portfolio of marketable equity securities, which we carry on our consolidated balance sheets at estimated fair value, has exposure to the risk of loss resulting from an adverse change in prices. We manage this risk by performing an analysis of prospective investments and through regular reviews of our portfolio by our investment staff.

Credit Risk

Our portfolio of fixed-maturity securities and, to a lesser extent, our portfolio of short-term investments is subject to credit risk, which we define as the potential loss in market value resulting from adverse changes in the borrower’s ability to repay its debt. We manage this risk by performing an analysis of prospective investments and through regular reviews of our portfolio by our investment staff. We also limit the percentage and amount of our total investment portfolio that we invest in the securities of any one issuer.

Our insurance subsidiaries provide property and casualty insurance coverages through independent insurance agencies. We bill the majority of this business directly to the insured, although we bill a portion of our commercial business through licensed insurance agents to whom our insurance subsidiaries extend credit in the normal course of business.

Because the pooling agreement does not relieve Atlantic States of primary liability as the originating insurer, Atlantic States is subject to a concentration of credit risk arising from the business it cedes to Donegal Mutual. Our insurance subsidiaries maintain reinsurance agreements with Donegal Mutual and with a number of other major unaffiliated authorized reinsurers.

27

Impact of Inflation

We establish property and casualty insurance premium rates before we know the amount of unpaid losses and loss expenses or the extent to which inflation may impact such expenses. Consequently, our insurance subsidiaries attempt, in establishing rates, to anticipate the potential impact of inflation.

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Our market risk generally represents the risk of gain or loss that may result from the potential change in the fair value of the securities we hold in our investment portfolio as a result of fluctuations in prices and interest rates and, to a lesser extent, our debt obligations. We manage our interest rate risk by maintaining an appropriate relationship between the average duration of our investment portfolio and the approximate duration of our liabilities, i.e., policy claims of our insurance subsidiaries and our debt obligations.

Our investment mix shifted slightly during the first nine months of 2014. We reinvested funds we held in short-term investments at year-end 2013 into fixed maturities. The duration of our investment portfolio increased slightly due to this reinvestment activity.

There have been no material changes to our quantitative or qualitative market risk exposure from December 31, 2013 through September 30, 2014.

Item 4. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

We conducted an evaluation, under the supervision and with the participation of our management, including our Acting Chief Executive Officer and our Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to SEC Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended, at the end of the period this Quarterly Report on Form 10-Q covers. Based upon that evaluation, our Acting Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures are effective to ensure that information we, including our consolidated subsidiaries, are required to disclose in our periodic filings with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.

Changes in Internal Control Over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to affect materially, our internal control over financial reporting.

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

We base all statements contained in this Quarterly Report on Form 10-Q that are not historic facts on our current expectations. Such statements are forward-looking in nature (as defined in the Private Securities Litigation Reform Act of 1995) and necessarily involve risks and uncertainties. Forward-looking statements we make may be identified by our use of words such as “will,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “seeks,” “estimates” and similar expressions. Actual results could vary materially. The factors that could cause our actual results to vary materially from forward-looking statements we have previously made, include, but are not limited to, our ability to maintain profitable operations, the adequacy of the loss and loss expense reserves of our insurance subsidiaries, business and economic conditions in the areas in which we operate, interest rates, competition from various insurance and other financial businesses, terrorism, the availability and cost of reinsurance, adverse and catastrophic weather events, legal and judicial developments, changes in regulatory requirements, our ability to integrate and manage successfully the companies we may acquire from time to time and the other risks that we describe from time to time in our filings with the SEC. We disclaim any obligation to update such statements or to announce publicly the results of any revisions that we may make to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.

Item 4T. Controls and Procedures.

Not applicable.

28

Part II. Other Information

Item 1. Legal Proceedings.

None.

Item 1A. Risk Factors.

Our business, results of operations and financial condition, and, therefore, the value of our Class A common stock and Class B common stock, are subject to a number of risks. For a description of certain risks, we refer to “Risk Factors” in our 2013 Annual Report on Form 10-K filed with the SEC on March 14, 2014. There have been no material changes in the risk factors disclosed in that Form 10-K Report during the nine months ended September 30, 2014.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

Period	(a) Total Number of Shares (or Units) Purchased	(b) Average Price Paid per Share (or Unit)	(c) Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	(d) Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
Month #1 July 1-31, 2014	Class A – None Class B – None	Class A – None Class B – None	Class A – None Class B – None
Month #2 August 1-31, 2014	Class A – None Class B – 11,500	Class A – None Class B – $25.00	Class A – None Class B – 11,500		(1)
Month #3 September 1-30, 2014	Class A – None Class B – None	Class A – None Class B – None	Class A – None Class B – None
Total	Class A – None Class B – 11,500	Class A – None Class B – $25.00	Class A – None Class B – 11,500

(1) Donegal Mutual purchased these shares pursuant to its announcement on August 17, 2004 that it will, at its discretion, purchase shares of our Class A common stock and Class B common stock at market prices prevailing from time to time in the open market subject to the provisions of SEC Rule 10b-18 and in privately negotiated transactions. Such announcement did not stipulate a maximum number of shares that may be purchased under this program.

Item 3. Defaults upon Senior Securities.

None.

Item 4. Removed and Reserved.

Item 5. Other Information.

None.

29

Item 6. Exhibits.

Exhibit No.	Description
Exhibit 31.1	Certification of Chief Executive Officer
Exhibit 31.2	Certification of Chief Financial Officer
Exhibit 32.1	Statement of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States Code
Exhibit 32.2	Statement of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 of Title 18 of the United States Code
Exhibit 101.INS	XBRL Instance Document
Exhibit 101.SCH	XBRL Taxonomy Extension Schema Document
Exhibit 101.PRE	XBRL Taxonomy Presentation Linkbase Document
Exhibit 101.CAL	XBRL Taxonomy Calculation Linkbase Document
Exhibit 101.LAB	XBRL Taxonomy Label Linkbase Document
Exhibit 101.DEF	XBRL Taxonomy Extension Definition Linkbase Document

30

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	DONEGAL GROUP INC.
November 6, 2014	By:	/s/ Kevin G. Burke
		Kevin G. Burke, Acting Chief Executive Officer
November 6, 2014	By:	/s/ Jeffrey D. Miller
		Jeffrey D. Miller, Executive Vice President
		and Chief Financial Officer

31

EX-31.1

Exhibit 31.1

CERTIFICATION

I, Kevin G. Burke, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2014 of Donegal Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15a-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2014	/s/ Kevin G. Burke
	Kevin G. Burke, Acting Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION

I, Jeffrey D. Miller, certify that:

1. I have reviewed this quarterly report on Form 10-Q for the quarter ended September 30, 2014 of Donegal Group Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15a-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 6, 2014	/s/ Jeffrey D. Miller
	Jeffrey D. Miller, Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

Statement of Chief Executive Officer

Pursuant to Section 1350 of Title 18 of the United States Code

Pursuant to Section 1350 of Title 18 of the United States Code, I, Kevin G. Burke, the Acting Chief Executive Officer of Donegal Group Inc. (the “Company”), hereby certify that, to the best of my knowledge:

1. The Company’s Form 10-Q Quarterly Report for the period ended September 30, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2014	/s/ Kevin G. Burke
	Kevin G. Burke, Acting Chief Executive Officer

EX-32.2

Exhibit 32.2

Statement of Chief Financial Officer

Pursuant to Section 1350 of Title 18 of the United States Code

Pursuant to Section 1350 of Title 18 of the United States Code, I, Jeffrey D. Miller, the Executive Vice President and Chief Financial Officer of Donegal Group Inc. (the “Company”), hereby certify that, to the best of my knowledge:

1. The Company’s Form 10-Q Quarterly Report for the period ended September 30, 2014 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 6, 2014	/s/ Jeffrey D. Miller
	Jeffrey D. Miller, Executive Vice President and Chief Financial Officer

XML

Segment Information - Summary of Financial Data by Segment (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Premiums earned
Net premiums earned	$ 142,149,561	$ 130,645,011	$ 412,286,978	$ 382,310,380
GAAP premiums earned	142,150,000	130,645,000	412,287,000	382,310,000
Net investment income	4,299,044	4,624,287	13,529,304	14,110,288
Realized investment gains	351,269	349,164	2,296,909	2,943,710
Equity in earnings of DFSC	476,906	735,380	1,234,773	2,499,854
Other	1,858,000	1,982,000	5,608,000	5,851,000
Total revenues	149,135,383	138,334,960	434,956,398	407,715,187
Underwriting income (loss):
SAP underwriting income (loss)	3,798,000	1,576,000	(14,336,000)	(6,318,000)
GAAP adjustments	730,000	1,509,000	7,130,000	5,849,000
GAAP underwriting income (loss)	4,528,000	3,085,000	(7,206,000)	(469,000)
Net investment income	4,299,044	4,624,287	13,529,304	14,110,288
Realized investment gains	351,269	349,164	2,296,909	2,943,710
Equity in earnings of DFSC	476,906	735,380	1,234,773	2,499,854
Other	959,000	721,000	2,286,000	1,375,000
Income before income tax expense	10,613,824	9,514,208	12,140,520	20,459,655
Commercial Lines [Member]
Premiums earned
Net premiums earned	59,221,000	52,040,000	170,263,000	149,283,000
Underwriting income (loss):
GAAP underwriting income (loss)	2,383,000	2,537,000	(8,792,000)	(2,133,000)
Personal Lines [Member]
Premiums earned
Net premiums earned	82,929,000	78,605,000	242,024,000	233,027,000
Underwriting income (loss):
GAAP underwriting income (loss)	$ 1,415,000	$ (961,000)	$ (5,544,000)	$ (4,185,000)

XML

Income Taxes - Additional Information (Detail) (USD $)			9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Le Mars [Member]
Operating Loss Carryforwards [Line Items]
Unrecognized tax benefits	$ 0	$ 0
Valuation allowance related to the portion of operating loss carryforwards			440,778
Deferred tax assets, net	41,500,000	39,600,000
Operating loss carryforward			4,700,000
Operating loss carryforward expiration period			2020
Operating loss carryforward annual limitations in amount on use			376,000
Alternative minimum tax credit carryforward	$ 10,000,000

XML

Investments - Additional Information (Detail) (USD $)	0 Months Ended	9 Months Ended						9 Months Ended	12 Months Ended	9 Months Ended	12 Months Ended			9 Months Ended	12 Months Ended
	Nov. 30, 2013	Sep. 30, 2014	Dec. 31, 2013	Sep. 30, 2014 Obligations of States and Political Subdivisions [Member]	Dec. 31, 2013 Obligations of States and Political Subdivisions [Member] General Obligation Bonds [Member]	Sep. 30, 2014 Special Revenue Bonds [Member]	Dec. 31, 2013 Special Revenue Bonds [Member]	Sep. 30, 2014 Education Bonds [Member]	Dec. 31, 2013 Education Bonds [Member]	Sep. 30, 2014 Water and Sewer Utility Bonds [Member]	Dec. 31, 2013 Water and Sewer Utility Bonds [Member]	Sep. 30, 2014 Equity Securities [Member] Securities	Sep. 30, 2014 Fixed Maturities [Member] Securities	Sep. 30, 2014 Accumulated Net Unrealized Investment Losses [Member]	Dec. 31, 2013 Accumulated Net Unrealized Investment Losses [Member]
Schedule of Investments [Line Items]
Aggregate fair value of bond held				$ 280,600,000	$ 294,100,000	$ 104,300,000	$ 91,900,000
Amortized cost of bond held				261,400,000	284,900,000	96,200,000	89,300,000
Percentage of which the company held security of any issuer		10.00%	10.00%
Percentage of investments in special revenue bonds								57.00%	56.00%	25.00%	23.00%
Net unrealized losses arising prior to reclassification date and classified in accumulated other comprehensive income	15,100,000
Amortization of unrealized losses recorded in accumulated other comprehensive income		945,783
Net unrealized losses reclassified in accumulated other comprehensive income														$ 14,000,000	$ 15,000,000
Depreciation of original cost value		20.00%
Time period for which individual security should be in unrealized position of twenty percentage or more to assume it as other than temporary decline		More than six months
Number of fixed maturity securities classified as available for sale												12	108
Percentage of ownership interest		48.20%

XML

Borrowings (Tables)

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Amount of FHLB of Indianapolis/Pittsburgh Stock Purchased, Collateral Pledged and Assets Related to MICO's/Atlantic States Agreement

The table below presents the amount of FHLB of Indianapolis stock MICO purchased, collateral pledged and assets related to MICO’s membership at September 30, 2014.

FHLB of Indianapolis stock purchased and owned as part of the agreement	$	252,100
Collateral pledged, at par (carrying value $2,467,278)		3,700,000
Borrowing capacity currently available		2,122,425

The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’ membership in the FHLB of Pittsburgh at September 30, 2014.

FHLB of Pittsburgh stock purchased and owned as part of the agreement	$	941,700
Collateral pledged, at par (carrying value $16,546,900)		20,500,000
Borrowing capacity currently available		810,756

XML

Borrowings - Amount of FHLB of Indianapolis/Pittsburgh Stock Purchased, Collateral Pledged and Assets Related to MICO's/Atlantic States Agreement (Parenthetical) (Detail) (Lines of Credit [Member], USD $)	Sep. 30, 2014
Indianapolis [Member] | MICO [Member]
Line of Credit Facility [Line Items]
Collateral pledged, at par, carrying value	$ 2,467,278
Pittsburgh [Member] | Atlantic States [Member]
Line of Credit Facility [Line Items]
Collateral pledged, at par, carrying value	$ 16,546,900

XML

Investments - Summary of Fixed Maturities and Equity Securities with Unrealized Losses (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 Months, Fair Value	$ 90,874	$ 207,175
Less Than 12 Months, Unrealized Losses	1,026	1,898
More Than 12 Months, Fair Value	15,789	43,913
More Than 12 Months, Unrealized Losses	301	488
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 Months, Fair Value	15,007	50,803
Less Than 12 Months, Unrealized Losses	60	822
More Than 12 Months, Fair Value	2,254	4,642
More Than 12 Months, Unrealized Losses	10	104
Obligations of States and Political Subdivisions [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 Months, Fair Value	8,119	65,171
Less Than 12 Months, Unrealized Losses	42	363
More Than 12 Months, Fair Value		13,405
More Than 12 Months, Unrealized Losses		99
Corporate Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 Months, Fair Value	25,323	16,694
Less Than 12 Months, Unrealized Losses	268	84
More Than 12 Months, Fair Value		6,852
More Than 12 Months, Unrealized Losses		72
Mortgage-Backed Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 Months, Fair Value	34,106	72,878
Less Than 12 Months, Unrealized Losses	210	536
More Than 12 Months, Fair Value	13,535	19,014
More Than 12 Months, Unrealized Losses	291	213
Equity Securities [Member]
Schedule of Available-for-sale Securities [Line Items]
Less Than 12 Months, Fair Value	8,319	1,629
Less Than 12 Months, Unrealized Losses	446	93
More Than 12 Months, Fair Value
More Than 12 Months, Unrealized Losses

XML

Consolidated Statements of Cash Flows (USD $)	9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013
Cash Flows from Operating Activities:
Net income	$ 10,052,967	$ 16,758,157
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,621,222	2,438,386
Net realized investment gains	(2,296,909)	(2,943,710)
Equity in earnings of Donegal Financial Services Corporation	(1,234,773)	(2,499,854)
Changes in assets and liabilities:
Losses and loss expenses	24,483,315	37,650,218
Unearned premiums	40,067,794	34,650,619
Premiums receivable	(15,662,330)	(13,299,479)
Deferred acquisition costs	(5,454,070)	(4,479,718)
Deferred income taxes	(494,946)	1,990,901
Reinsurance receivable	(7,572,790)	(26,030,466)
Prepaid reinsurance premiums	(8,497,832)	(7,299,921)
Accrued investment income	(861,410)	(161,257)
Due to affiliate	(1,921,725)	(4,527,389)
Reinsurance balances payable	(7,503,895)	596,119
Current income taxes	1,421,216	(2,355,260)
Accrued expenses	(2,304,068)	959,651
Other, net	1,070,705	1,015,118
Net adjustments	15,859,504	15,703,958
Net cash provided by operating activities	25,912,471	32,462,115
Cash Flows from Investing Activities:
Purchases of fixed maturities, held to maturity	(100,356,105)
Purchases of fixed maturities, available for sale	(61,688,801)	(132,694,023)
Purchases of equity securities, available for sale	(23,904,348)	(12,605,485)
Maturity of fixed maturities:
Held to maturity	31,852,974	11,697,169
Available for sale	22,921,683	42,631,930
Sales of fixed maturities, available for sale	22,781,515	74,570,305
Sales of equity securities, available for sale	8,436,920	8,299,617
Net purchases of property and equipment	(1,937,280)	(617,902)
Net decrease in investment in affiliates		465,000
Net sales (purchases) of short-term investments	83,244,835	(14,853,918)
Net cash used in investing activities	(18,648,607)	(23,107,307)
Cash Flows from Financing Activities:
Cash dividends paid	(10,119,401)	(9,532,789)
Issuance of common stock	8,228,902	6,194,232
Purchase of treasury stock	(12,026)	(60,024)
Payments on subordinated debentures		(15,465,000)
Payments on line of credit	(5,000,000)	(9,000,000)
Borrowings under lines of credit	3,000,000	21,500,000
Net cash used in financing activities	(3,902,525)	(6,363,581)
Net increase in cash	3,361,339	2,991,227
Cash at beginning of period	27,636,416	19,801,290
Cash at end of period	30,997,755	22,792,517
Cash paid during period - Interest	980,364	1,189,584
Net cash paid during period - Taxes	$ 900,000	$ 3,850,000

XML

Share-Based Compensation - Additional Information (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Compensation expense in stock compensation plans	$ 494,974	$ 155,069	$ 1,500,000	$ 482,897
Income tax benefit of stock compensation plans	173,241	54,274	536,725	169,014
Unrecognized compensation expense related to nonvested share-based compensation	3,100,000		3,100,000
Weighted average period of unrecognized compensation cost			1 year 8 months 12 days
Cash from option exercises	3,900,000	910,838	5,200,000	4,500,000
Tax benefit for tax deductions from option exercises	$ 177,717	$ 21,986	$ 241,391	$ 208,867

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Earnings Per Share - Summary of Reconciliation of Numerators and Denominators Used in Basic and Diluted Per Share Computations (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Class A common stock [Member]
Numerator:
Allocation of net income	$ 7,072	$ 6,133	$ 8,131	$ 13,414
Denominator:
Weighted-average shares outstanding	21,175,388	20,383,165	21,004,426	20,246,449
Basic net income per share	$ 0.33	$ 0.30	$ 0.39	$ 0.66
Numerator:
Allocation of net income	7,072	6,133	8,131	13,414
Denominator:
Number of shares used in basic computation	21,175,388	20,383,165	21,004,426	20,246,449
Weighted-average shares effect of dilutive securities
Add: Director and employee stock options	526,260	224,446	431,762	305,377
Number of shares used in per share computations	21,701,648	20,607,611	21,436,188	20,551,826
Diluted net income per share	$ 0.33	$ 0.30	$ 0.38	$ 0.65
Class B common stock [Member]
Numerator:
Allocation of net income	1,677	1,521	1,922	3,344
Denominator:
Weighted-average shares outstanding	5,576,775	5,576,775	5,576,775	5,576,775
Basic net income per share	$ 0.30	$ 0.27	$ 0.35	$ 0.60
Numerator:
Allocation of net income	$ 1,677	$ 1,521	$ 1,922	$ 3,344
Denominator:
Number of shares used in basic computation	5,576,775	5,576,775	5,576,775	5,576,775
Weighted-average shares effect of dilutive securities
Add: Director and employee stock options	0		0
Number of shares used in per share computations	5,576,775	5,576,775	5,576,775	5,576,775
Diluted net income per share	$ 0.30	$ 0.27	$ 0.35	$ 0.60

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Earnings Per Share - Additional Information (Detail)	9 Months Ended
	Sep. 30, 2014
Equity [Abstract]
Percentage of dividend declared on each share	10.00%

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Fair Value Measurements - Fair Value Measurements for Investments in Available-for-Sale Fixed Maturity and Equity Securities (Detail) (USD $) In Thousands, unless otherwise specified	Sep. 30, 2014	Dec. 31, 2013
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	$ 461,708	$ 416,075
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	18,939	14,333
Obligations of States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	266,974	277,547
Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	59,135	40,672
Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	86,573	71,100
Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	30,087	12,423
Assets and Liabilities on Recurring Basis [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	461,708	416,075
Assets and Liabilities on Recurring Basis [Member] | U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	18,939	14,333
Assets and Liabilities on Recurring Basis [Member] | Obligations of States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	266,974	277,547
Assets and Liabilities on Recurring Basis [Member] | Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	59,135	40,672
Assets and Liabilities on Recurring Basis [Member] | Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	86,573	71,100
Assets and Liabilities on Recurring Basis [Member] | Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	30,087	12,423
Assets and Liabilities on Recurring Basis [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	20,487	6,468
Assets and Liabilities on Recurring Basis [Member] | Quoted Prices in Active Markets for Identical Assets (Level 1) [Member] | Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	20,487	6,468
Assets and Liabilities on Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	441,221	409,607
Assets and Liabilities on Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	18,939	14,333
Assets and Liabilities on Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | Obligations of States and Political Subdivisions [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	266,974	277,547
Assets and Liabilities on Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | Corporate Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	59,135	40,672
Assets and Liabilities on Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | Mortgage-Backed Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	86,573	71,100
Assets and Liabilities on Recurring Basis [Member] | Significant Other Observable Inputs (Level 2) [Member] | Equity Securities [Member]
Fair Value, Assets and Liabilities Measured on Recurring and Nonrecurring Basis [Line Items]
Available-for-sale Securities, Fair Value Disclosure	$ 9,600	$ 5,955

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Earnings Per Share - Reconciliation of Diluted Shares Outstanding (Detail)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Earnings Per Share [Abstract]
Number of options to purchase Class A shares excluded	2,504,333	1,559,267	2,548,500	1,209,000

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Reinsurance - Additional Information (Detail) (USD $) In Millions, unless otherwise specified	9 Months Ended
	Sep. 30, 2014
Ceded Credit Risk [Line Items]
Percentage of share in results of pooled business subsidiary	80.00%
Percentage of share in results of pooled business owned by third party	20.00%
Excess of loss reinsured under an agreement	$ 1.0
Percentage of accumulation of losses	100.00%
Natural disasters, over a set retention	5.0
Natural disasters, aggregate annual deduction	1.5
Quota share reinsurance percentage	20.00%
Donegal Mutual [Member]
Ceded Credit Risk [Line Items]
Maximum amount of loss coverage under reinsurance agreement of property catastrophe	$ 149.0

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Consolidated Statement of Stockholders' Equity (USD $)	Total	Additional Paid-In Capital [Member]	Accumulated Other Comprehensive (Loss) Income [Member]	Retained Earnings [Member]	Treasury Stock [Member]	Class A common stock [Member]	Class B common stock [Member]
Beginning balance at Dec. 31, 2013	$ 396,877,111	$ 189,116,410	$ (2,312,890)	$ 222,888,887	$ (13,089,656)	$ 217,868	$ 56,492
Beginning balance, shares at Dec. 31, 2013						21,786,765	5,649,240
Issuance of common stock (stock compensation plans)	8,069,704	8,065,021				4,683
Issuance of common stock (stock compensation plans), shares						468,266
Net income	10,052,967			10,052,967
Cash dividends declared	(6,820,219)			(6,820,219)
Grant of stock options		330,637		(330,637)
Tax benefit on exercise of stock options	241,391	241,391
Repurchase of treasury shares	(12,026)				(12,026)
Other comprehensive income (loss)	6,534,985		6,534,985
Ending balance at Sep. 30, 2014	$ 414,943,913	$ 197,753,459	$ 4,222,095	$ 225,790,998	$ (13,101,682)	$ 222,551	$ 56,492
Ending balance, shares at Sep. 30, 2014						22,255,031	5,649,240

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Investments - Summary of Amortized Cost and Estimated Fair Value of Fixed Maturities and Equity Securities (Detail) (USD $)	Sep. 30, 2014	Dec. 31, 2013	Nov. 30, 2013
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	$ 308,941,155	$ 240,370,277
Held to Maturity, Gross Unrealized Gains	11,682,000	515,000
Held to Maturity, Gross Unrealized Losses	641,000	2,095,000
Total held to maturity, Estimated Fair Value	319,982,000	238,790,000	212,228,289
Available for Sale, Amortized Cost	440,783,000	402,422,000
Available for Sale, Gross Unrealized Gains	21,611,000	13,943,000
Available for Sale, Gross Unrealized Losses	686,000	290,000
Available for Sale, Estimated Fair Value	461,708,000	416,075,000
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	53,509,000	47,946,000
Held to Maturity, Gross Unrealized Gains	870,000
Held to Maturity, Gross Unrealized Losses	27,000	870,000
Total held to maturity, Estimated Fair Value	54,352,000	47,076,000	47,914,311
Available for Sale, Amortized Cost	18,887,000	14,272,000
Available for Sale, Gross Unrealized Gains	95,000	118,000
Available for Sale, Gross Unrealized Losses	43,000	57,000
Available for Sale, Estimated Fair Value	18,939,000	14,333,000
Obligations of States and Political Subdivisions [Member]
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	108,931,000	108,435,000
Held to Maturity, Gross Unrealized Gains	9,067,000	465,000
Held to Maturity, Gross Unrealized Losses	42,000	446,000
Total held to maturity, Estimated Fair Value	117,956,000	108,454,000	79,866,801
Available for Sale, Amortized Cost	248,645,000	265,783,000
Available for Sale, Gross Unrealized Gains	18,329,000	11,779,000
Available for Sale, Gross Unrealized Losses		15,000
Available for Sale, Estimated Fair Value	266,974,000	277,547,000
Corporate Securities [Member]
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	52,171,000	14,875,000
Held to Maturity, Gross Unrealized Gains	779,000	17,000
Held to Maturity, Gross Unrealized Losses	227,000	112,000
Total held to maturity, Estimated Fair Value	52,723,000	14,780,000	14,879,294
Available for Sale, Amortized Cost	58,209,000	39,940,000
Available for Sale, Gross Unrealized Gains	967,000	775,000
Available for Sale, Gross Unrealized Losses	41,000	43,000
Available for Sale, Estimated Fair Value	59,135,000	40,672,000
Mortgage-Backed Securities [Member]
Schedule of Equity Method Investments [Line Items]
Total held to maturity, Amortized Cost	94,330,000	69,114,000
Held to Maturity, Gross Unrealized Gains	966,000	33,000
Held to Maturity, Gross Unrealized Losses	345,000	667,000
Total held to maturity, Estimated Fair Value	94,951,000	68,480,000	69,567,883
Available for Sale, Amortized Cost	85,254,000	70,259,000
Available for Sale, Gross Unrealized Gains	1,475,000	923,000
Available for Sale, Gross Unrealized Losses	156,000	82,000
Available for Sale, Estimated Fair Value	86,573,000	71,100,000
Fixed Maturities [Member]
Schedule of Equity Method Investments [Line Items]
Available for Sale, Amortized Cost	410,995,000	390,254,000
Available for Sale, Gross Unrealized Gains	20,866,000	13,595,000
Available for Sale, Gross Unrealized Losses	240,000	197,000
Available for Sale, Estimated Fair Value	431,621,000	403,652,000
Equity Securities [Member]
Schedule of Equity Method Investments [Line Items]
Available for Sale, Amortized Cost	29,788,000	12,168,000
Available for Sale, Gross Unrealized Gains	745,000	348,000
Available for Sale, Gross Unrealized Losses	446,000	93,000
Available for Sale, Estimated Fair Value	$ 30,087,000	$ 12,423,000

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Borrowings - Additional Information (Detail) (USD $)	9 Months Ended					9 Months Ended
	Sep. 30, 2014	Dec. 31, 2013	Mar. 31, 2013 Atlantic States [Member]	Sep. 30, 2014 Atlantic States [Member] Lines of Credit [Member]	Sep. 30, 2014 Maximum [Member]	Sep. 30, 2014 Subordinated Debentures [Member]	Sep. 30, 2014 Manufacturers and Traders Trust Company [Member]	Jun. 30, 2014 Manufacturers and Traders Trust Company [Member]	Sep. 30, 2014 MICO [Member] Indianapolis [Member]	Dec. 31, 2013 MICO [Member] Indianapolis [Member]	Sep. 30, 2014 MICO [Member] Indianapolis [Member] Lines of Credit [Member]	Sep. 30, 2014 West Bend Mutual Insurance Company [Member] Subordinated Debentures [Member]
Line of Credit Facility [Line Items]
Right to request for extension of credit agreement with Manufacturers and Traders Trust Company								$ 60,000,000			$ 2,122,425
Line of credit that expires date	2017-07
Outstanding borrowings	56,000,000	58,000,000					41,000,000
Line of credit facility remaining borrowing capacity	19,000,000
Line of credit, interest rate related to LIBOR rate description	Interest rates equal to M&T's current prime rate or the then current LIBOR rate plus 2.25%.
Debt instrument interest rate effective percentage					2.25%
Interest rate on borrowings							2.41%
Percentage commitment fee	0.20%
Revolving credit facility, borrowing interest rate	The credit agreement requires our compliance with certain covenants. These covenants include minimum levels of our net worth, leverage ratio, statutory surplus and the A.M. Best ratings of our insurance subsidiaries. We were in compliance with all requirements of the credit agreement during the nine months ended September 30, 2014.
Federal Home Loan Bank borrowing amount outstanding									0	0
Interest rate on advances				0.32%
Debt issued to FHLB in exchange of advance cash			15,000,000
Debt instrument basis spread on variable rate						5.00%
Purchase of surplus note												$ 5,000,000

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Consolidated Balance Sheets (USD $)	Sep. 30, 2014	Dec. 31, 2013
Fixed maturities
Held to maturity, at amortized cost	$ 308,941,155	$ 240,370,277
Available for sale, at fair value	431,621,301	403,651,965
Equity securities, available for sale, at fair value	30,087,270	12,422,837
Investments in affiliates	38,837,543	35,685,433
Short-term investments, at cost, which approximates fair value	16,432,960	99,677,795
Total investments	825,920,229	791,808,307
Cash	30,997,755	27,636,416
Accrued investment income	6,284,941	5,423,531
Premiums receivable	139,566,959	123,904,629
Reinsurance receivable	251,811,903	244,239,113
Deferred policy acquisition costs	49,081,580	43,627,510
Deferred tax asset, net	17,286,666	20,310,558
Prepaid reinsurance premiums	121,161,774	112,663,942
Property and equipment, net	7,698,400	6,424,703
Accounts receivable - securities		1,187,866
Federal income taxes recoverable		420,952
Goodwill	5,625,354	5,625,354
Other intangible assets	958,010	958,010
Other	1,328,821	1,179,611
Total assets	1,457,722,392	1,385,410,502
Liabilities
Unpaid losses and loss expenses	520,102,584	495,619,269
Unearned premiums	422,802,436	382,734,642
Accrued expenses	16,961,029	19,265,097
Reinsurance balances payable	10,444,913	17,948,808
Borrowings under lines of credit	56,000,000	58,000,000
Cash dividends declared		3,299,182
Subordinated debentures	5,000,000	5,000,000
Accounts payable - securities	5,254,305	751,641
Federal income taxes payable	1,000,264
Due to affiliate	248,500	2,170,225
Drafts payable	2,438,214	1,386,285
Other	2,526,234	2,358,242
Total liabilities	1,042,778,479	988,533,391
Stockholders' Equity
Preferred stock, $.01 par value, authorized 2,000,000 shares; none issued
Additional paid-in capital	197,753,459	189,116,410
Accumulated other comprehensive income (loss)	4,222,095	(2,312,890)
Retained earnings	225,790,998	222,888,887
Treasury stock	(13,101,682)	(13,089,656)
Total stockholders' equity	414,943,913	396,877,111
Total liabilities and stockholders' equity	1,457,722,392	1,385,410,502
Class A common stock [Member]
Stockholders' Equity
Common stock value	222,551	217,868
Total stockholders' equity	222,551	217,868
Class B common stock [Member]
Stockholders' Equity
Common stock value	56,492	56,492
Total stockholders' equity	$ 56,492	$ 56,492

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Fair Value Measurements - Additional information (Detail) (USD $)	Sep. 30, 2014
Fair Value Disclosures [Abstract]
Transfer of investments between Levels 1 and 2	$ 0

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Consolidated Statements of Comprehensive Income (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
Net income	$ 8,748,711	$ 7,653,734	$ 10,052,967	$ 16,758,157
Unrealized gain (loss) on securities:
Unrealized holding income (loss) during the period, net of income tax expense (benefit)	(447,448)	(1,175,052)	8,050,945	(25,511,627)
Reclassification adjustment for gains included in net income, net of income tax expense	(231,838)	(230,449)	(1,515,960)	(1,942,849)
Other comprehensive income (loss)	(679,286)	(1,405,501)	6,534,985	(27,454,476)
Comprehensive income (loss)	$ 8,069,425	$ 6,248,233	$ 16,587,952	$ (10,696,319)

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Investments - Summary of Amortized Cost and Estimated Fair Value of Fixed Maturities by Contractual Maturity (Detail) (USD $)	Sep. 30, 2014	Dec. 31, 2013	Nov. 30, 2013
Held to maturity
Due in one year or less, Amortized Cost	$ 3,621,000
Due after one year through five years, Amortized Cost	28,376,000
Due after five years through ten years, Amortized Cost	84,257,000
Due after ten years, Amortized Cost	98,357,000
Mortgage-backed securities, Amortized Cost	94,330,000
Total held to maturity, Amortized Cost	308,941,155	240,370,277
Due in one year or less, Estimated Fair Value	3,633,000
Due after one year through five years, Estimated Fair Value	28,535,000
Due after five years through ten years, Estimated Fair Value	85,916,000
Due after ten years, Estimated Fair Value	106,947,000
Mortgage-backed securities, Estimated Fair Value	94,951,000
Total held to maturity, Estimated Fair Value	319,982,000	238,790,000	212,228,289
Available for sale
Due in one year or less, Amortized Cost	10,749,000
Due after one year through five years, Amortized Cost	67,063,000
Due after five years through ten years, Amortized Cost	119,805,000
Due after ten years, Amortized Cost	128,124,000
Mortgage-backed securities, Amortized Cost	85,254,000
Total available for sale, Amortized Cost	410,995,000
Due in one year or less, Estimated Fair Value	10,794,000
Due after one year through five years, Estimated Fair Value	68,322,000
Due after five years through ten years, Estimated Fair Value	126,944,000
Due after ten years, Estimated Fair Value	138,988,000
Mortgage-backed securities, Estimated Fair Value	86,573,000
Total available for sale, Estimated Fair Value	$ 431,621,301	$ 403,651,965

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Earnings Per Share (Tables)

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Summary of Reconciliation of Numerators and Denominators Used in Basic and Diluted Per Share Computations

The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net income per share for each class of our common stock:

	Three Months Ended September 30,
	2014				2013
	Class A		Class B		Class A		Class B
	(in thousands, except per share data)
Basic and diluted net income per share:
Numerator:
Allocation of net income	$	7,072	$	1,677	$	6,133	$	1,521
Denominator:
Weighted-average shares outstanding		21,175,388		5,576,775		20,383,165		5,576,775
Basic net income per share	$	0.33	$	0.30	$	0.30	$	0.27
Diluted net income per share:
Numerator:
Allocation of net income	$	7,072	$	1,677	$	6,133	$	1,521
Denominator:
Number of shares used in basic computation		21,175,388		5,576,775		20,383,165		5,576,775
Weighted-average shares effect of dilutive securities
Add: Director and employee stock options		526,260		—		224,446		—
Number of shares used in per share computations		21,701,648		5,576,775		20,607,611		5,576,775
Diluted net income per share	$	0.33	$	0.30	$	0.30	$	0.27

	Nine Months Ended September 30,
	2014				2013
	Class A		Class B		Class A		Class B
	(in thousands, except per share data)
Basic and diluted net income per share:
Numerator:
Allocation of net income	$	8,131	$	1,922	$	13,414	$	3,344
Denominator:
Weighted-average shares outstanding		21,004,426		5,576,775		20,246,449		5,576,775
Basic net income per share	$	0.39	$	0.35	$	0.66	$	0.60
Diluted net income per share:
Numerator:
Allocation of net income	$	8,131	$	1,922	$	13,414	$	3,344
Denominator:
Number of shares used in basic computation		21,004,426		5,576,775		20,246,449		5,576,775
Weighted-average shares effect of dilutive securities
Add: Director and employee stock options		431,762		—		305,377		—
Number of shares used in per share computations		21,436,188		5,576,775		20,551,826		5,576,775
Diluted net income per share	$	0.38	$	0.35	$	0.65	$	0.60

Reconciliation of Diluted Shares Outstanding

We did not include outstanding options to purchase the following number of shares of Class A common stock in our computation of diluted earnings per share because the exercise price of the options was greater than the average market price of our Class A common stock during the applicable period:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Number of options to purchase Class A shares excluded		2,504,333		1,559,267		2,548,500		1,209,000

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Investments - Summary of Gross Realized Gains and Losses from Investments before Applicable Income Taxes (Detail) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Gain (Loss) on Investments [Line Items]
Gross realized gains	$ 426,000	$ 742,000	$ 2,426,000	$ 3,823,000
Gross realized losses	75,000	393,000	129,000	879,000
Net realized gains	351,269	349,164	2,296,909	2,943,710
Fixed Maturities [Member]
Gain (Loss) on Investments [Line Items]
Gross realized gains	19,000	390,000	1,367,000	2,730,000
Gross realized losses	33,000	304,000	34,000	328,000
Equity Securities [Member]
Gain (Loss) on Investments [Line Items]
Gross realized gains	407,000	352,000	1,059,000	1,093,000
Gross realized losses	$ 42,000	$ 89,000	$ 95,000	$ 551,000

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Segment Information (Tables)

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Summary of Financial Data by Segment

Financial data by segment is as follows:

	Three Months Ended September 30,
	2014		2013
	(in thousands)
Revenues:
Premiums earned
Commercial lines	$	59,221	$	52,040
Personal lines		82,929		78,605
GAAP premiums earned		142,150		130,645
Net investment income		4,299		4,624
Realized investment gains		351		349
Equity in earnings of DFSC		477		735
Other		1,858		1,982
Total revenues	$	149,135	$	138,335
Income before income taxes:
Underwriting income (loss):
Commercial lines	$	2,383	$	2,537
Personal lines		1,415		(961	)
SAP underwriting income		3,798		1,576
GAAP adjustments		730		1,509
GAAP underwriting income		4,528		3,085
Net investment income		4,299		4,624
Realized investment gains		351		349
Equity in earnings of DFSC		477		735
Other		959		721
Income before income taxes	$	10,614	$	9,514

	Nine Months Ended September 30,
	2014			2013
	(in thousands)
Revenues:
Premiums earned
Commercial lines	$	170,263		$	149,283
Personal lines		242,024			233,027
GAAP premiums earned		412,287			382,310
Net investment income		13,529			14,110
Realized investment gains		2,297			2,944
Equity in earnings of DFSC		1,235			2,500
Other		5,608			5,851
Total revenues	$	434,956		$	407,715
Income before income taxes:
Underwriting loss:
Commercial lines	$	(8,792	)	$	(2,133	)
Personal lines		(5,544	)		(4,185	)
SAP underwriting loss		(14,336	)		(6,318	)
GAAP adjustments		7,130			5,849
GAAP underwriting loss		(7,206	)		(469	)
Net investment income		13,529			14,110
Realized investment gains		2,297			2,944
Equity in earnings of DFSC		1,235			2,500
Other		2,286			1,375
Income before income taxes	$	12,141		$	20,460

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Consolidated Statements of Comprehensive Income (Parenthetical) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Statement of Comprehensive Income [Abstract]
Income tax expense (benefit) on unrealized holding (loss) income arising during the period	$ 246,339	$ 638,094	$ 4,299,787	$ (13,782,319)
Income tax expense on reclassification adjustment for gains	$ 119,431	$ 118,715	$ 780,949	$ 1,000,861

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Consolidated Balance Sheets (Parenthetical) (USD $)	Sep. 30, 2014	Dec. 31, 2013
Preferred stock, par value	$ 0.01	$ 0.01
Preferred stock, shares authorized	2,000,000	2,000,000
Preferred stock, shares issued	0	0
Class A common stock [Member]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	40,000,000	40,000,000
Common stock, shares issued	22,255,031	21,786,765
Common stock, shares outstanding	21,313,323	20,845,903
Class B common stock [Member]
Common stock, par value	$ 0.01	$ 0.01
Common stock, shares authorized	10,000,000	10,000,000
Common stock, shares issued	5,649,240	5,649,240
Common stock, shares outstanding	5,576,775	5,576,775

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Share-Based Compensation

9 Months Ended

Sep. 30, 2014

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Share-Based Compensation

8 - Share–Based Compensation

We measure all share-based payments to employees, including grants of stock options, and use a fair-value-based method for the recording of related compensation expense in our consolidated statements of income. In determining the expense we record for stock options granted to directors and employees of our subsidiaries and affiliates, we estimate the fair value of each option award on the date of grant using the Black-Scholes option pricing model. The significant assumptions we utilize in applying the Black-Scholes option pricing model are the risk-free interest rate, the expected term, the dividend yield and the expected volatility.

We charged compensation expense related to our stock compensation plans against income before income taxes of $494,974 and $155,069 for the three months ended September 30, 2014 and 2013, respectively, with a corresponding income tax benefit of $173,241 and $54,274, respectively. We charged compensation expense related to our stock compensation plans against income before income taxes of $1.5 million and $482,897 for the nine months ended September 30, 2014 and 2013, respectively, with a corresponding income tax benefit of $536,725 and $169,014, respectively. At September 30, 2014, we had $3.1 million of unrecognized compensation expense related to nonvested share-based compensation granted under our stock compensation plans. We expect to recognize this cost over a weighted average period of 1.7 years.

We received cash from option exercises under all stock compensation plans for the three months ended September 30, 2014 and 2013 of $3.9 million and $910,838, respectively. We received cash from option exercises under all stock compensation plans for the nine months ended September 30, 2014 and 2013 of $5.2 million and $4.5 million, respectively. We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $177,717 and $21,986 for the three months ended September 30, 2014 and 2013, respectively. We realized actual tax benefits for the tax deductions from option exercises of share-based compensation of $241,391 and $208,867 for the nine months ended September 30, 2014 and 2013, respectively.

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Document and Entity Information	9 Months Ended
	Sep. 30, 2014	Nov. 01, 2014 Class A common stock [Member]	Nov. 01, 2014 Class B common stock [Member]
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q3
Trading Symbol	DGICA
Entity Registrant Name	DONEGAL GROUP INC
Entity Central Index Key	0000800457
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Common Stock, Shares Outstanding		21,355,557	5,576,775

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Fair Value Measurements

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements

9 - Fair Value Measurements

We account for financial assets using a framework that establishes a hierarchy that ranks the quality and reliability of the inputs, or assumptions, we use in the determination of fair value, and we classify financial assets and liabilities carried at fair value in one of the following three categories:

Level 1 – quoted prices in active markets for identical assets and liabilities;

Level 2 – directly or indirectly observable inputs other than Level 1 quoted prices; and

Level 3 – unobservable inputs not corroborated by market data.

For investments that have quoted market prices in active markets, we use the quoted market price as fair value and include these investments in Level 1 of the fair value hierarchy. We classify publicly-traded equity securities as Level 1. When quoted market prices in active markets are not available, we base fair values on quoted market prices of comparable instruments or price estimates we obtain from independent pricing services and include these investments in Level 2 of the fair value hierarchy. We classify our fixed maturity investments as Level 2. Our fixed maturity investments consist of U.S. Treasury securities and obligations of U.S. government corporations and agencies, obligations of states and political subdivisions, corporate securities and mortgage-backed securities. We also classify a portion of our equity securities as Level 2.

We present our investments in available-for-sale fixed maturity and equity securities at estimated fair value. The estimated fair value of a security may differ from the amount that could be realized if we sold the security in a forced transaction. In addition, the valuation of fixed maturity investments is more subjective when markets are less liquid, increasing the potential that the estimated fair value does not reflect the price at which an actual transaction would occur. We utilize nationally recognized independent pricing services to estimate fair values or obtain market quotations for substantially all of our fixed maturity and equity investments. These pricing services utilize market quotations for fixed maturity and equity securities that have quoted prices in active markets. For fixed maturity securities that generally do not trade on a daily basis, the pricing services prepare estimates of fair value measurements based predominantly on observable market inputs. The pricing services do not use broker quotes in determining the fair values of our investments. Our investment personnel review the estimates of fair value the pricing services provide to determine if the estimates we obtain from the pricing services are representative of fair values based upon our investment personnel’s general knowledge of the market, their research findings related to unusual fluctuations in value and their comparison of such values to execution prices for similar securities. Our investment personnel regularly monitor the market, current trading ranges for similar securities and the pricing of specific investments. Our investment personnel review all pricing estimates that we receive from the pricing services against their expectations with respect to pricing based on fair market curves, security ratings, coupon rates, security type and recent trading activity. Our investment personnel review documentation with respect to the pricing services’ pricing methodology that they obtain periodically to determine if the primary pricing sources, market inputs and pricing frequency for various security types are reasonable. At December 31, 2013, we received one estimate per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. At September 30, 2014, we received two estimates per security from the pricing services, and we priced substantially all of our Level 1 and Level 2 investments using those prices. In our review of the estimates the pricing services provided at September 30, 2014 and December 31, 2013, we did not identify any material discrepancies, and we did not make any adjustments to the estimates the pricing services provided.

We present our cash and short-term investments at estimated fair value. We classify these items as Level 1.

The carrying values in the balance sheet for premium receivables and reinsurance receivables and payables for premiums and paid losses and loss expenses approximate their fair values. The carrying amounts we report in the balance sheet for our subordinated debentures and borrowings under lines of credit approximate their fair values. We classify these items as Level 3.

We evaluate our assets and liabilities on a recurring basis to determine the appropriate level at which to classify them for each reporting period.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at September 30, 2014:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	18,939	$	—	$	18,939	$	—
Obligations of states and political subdivisions		266,974		—		266,974		—
Corporate securities		59,135		—		59,135		—
Mortgage-backed securities		86,573		—		86,573		—
Equity securities		30,087		20,487		9,600		—
Totals	$	461,708	$	20,487	$	441,221	$	—

We did not transfer any investments between Levels 1 and 2 during the nine months ended September 30, 2014.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2013:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,333	$	—	$	14,333	$	—
Obligations of states and political subdivisions		277,547		—		277,547		—
Corporate securities		40,672		—		40,672		—
Mortgage-backed securities		71,100		—		71,100		—
Equity securities		12,423		6,468		5,955		—
Totals	$	416,075	$	6,468	$	409,607	$	—

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Consolidated Statements of Income (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Revenues:
Net premiums earned	$ 142,149,561	$ 130,645,011	$ 412,286,978	$ 382,310,380
Investment income, net of investment expenses	4,299,044	4,624,287	13,529,304	14,110,288
Net realized investment gains	351,269	349,164	2,296,909	2,943,710
Lease income	217,144	212,581	643,726	638,535
Installment payment fees	1,641,459	1,768,537	4,964,708	5,212,420
Equity in earnings of Donegal Financial Services Corporation	476,906	735,380	1,234,773	2,499,854
Total revenues	149,135,383	138,334,960	434,956,398	407,715,187
Expenses:
Net losses and loss expenses	91,003,905	84,882,734	286,523,746	259,935,100
Amortization of deferred policy acquisition costs	22,889,000	20,766,000	66,233,000	60,236,000
Other underwriting expenses	22,795,149	21,454,770	64,800,475	61,335,688
Policyholder dividends	933,910	456,675	1,935,660	1,272,530
Interest	368,417	431,899	1,177,034	1,252,747
Other expenses	531,178	828,674	2,145,963	3,223,467
Total expenses	138,521,559	128,820,752	422,815,878	387,255,532
Income before income tax expense	10,613,824	9,514,208	12,140,520	20,459,655
Income tax expense	1,865,113	1,860,474	2,087,553	3,701,498
Net income	$ 8,748,711	$ 7,653,734	$ 10,052,967	$ 16,758,157
Class A common stock [Member]
Earnings per common share:
Common stock - basic and diluted	$ 0.33	$ 0.30
Common stock - basic	$ 0.33	$ 0.30	$ 0.39	$ 0.66
Common stock - diluted	$ 0.33	$ 0.30	$ 0.38	$ 0.65
Class B common stock [Member]
Earnings per common share:
Common stock - basic and diluted	$ 0.30	$ 0.27	$ 0.35	$ 0.60
Common stock - basic	$ 0.30	$ 0.27	$ 0.35	$ 0.60
Common stock - diluted	$ 0.30	$ 0.27	$ 0.35	$ 0.60

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Earnings Per Share

9 Months Ended

Sep. 30, 2014

Earnings Per Share [Abstract]

Earnings Per Share

3 - Earnings Per Share

We have two classes of common stock, which we refer to as our Class A common stock and our Class B common stock. Our certificate of incorporation provides that whenever our board of directors declares a dividend on our Class B common stock, our board of directors shall simultaneously declare a dividend on our Class A common stock that is payable to the holders of our Class A common stock at the same time and as of the same record date at a rate that is at least 10% greater than the rate at which our board of directors declared a dividend on our Class B common stock. Accordingly, we use the two-class method to compute our earnings per common share. The two-class method is an earnings allocation formula that determines earnings per share separately for each class of common stock based on dividends we have declared and an allocation of our remaining undistributed earnings using a participation percentage that reflects the dividend rights of each class. The table below presents for the periods indicated a reconciliation of the numerators and denominators we used to compute basic and diluted net income per share for each class of our common stock:

	Three Months Ended September 30,
	2014				2013
	Class A		Class B		Class A		Class B
	(in thousands, except per share data)
Basic and diluted net income per share:
Numerator:
Allocation of net income	$	7,072	$	1,677	$	6,133	$	1,521
Denominator:
Weighted-average shares outstanding		21,175,388		5,576,775		20,383,165		5,576,775
Basic net income per share	$	0.33	$	0.30	$	0.30	$	0.27
Diluted net income per share:
Numerator:
Allocation of net income	$	7,072	$	1,677	$	6,133	$	1,521
Denominator:
Number of shares used in basic computation		21,175,388		5,576,775		20,383,165		5,576,775
Weighted-average shares effect of dilutive securities
Add: Director and employee stock options		526,260		—		224,446		—
Number of shares used in per share computations		21,701,648		5,576,775		20,607,611		5,576,775
Diluted net income per share	$	0.33	$	0.30	$	0.30	$	0.27

	Nine Months Ended September 30,
	2014				2013
	Class A		Class B		Class A		Class B
	(in thousands, except per share data)
Basic and diluted net income per share:
Numerator:
Allocation of net income	$	8,131	$	1,922	$	13,414	$	3,344
Denominator:
Weighted-average shares outstanding		21,004,426		5,576,775		20,246,449		5,576,775
Basic net income per share	$	0.39	$	0.35	$	0.66	$	0.60
Diluted net income per share:
Numerator:
Allocation of net income	$	8,131	$	1,922	$	13,414	$	3,344
Denominator:
Number of shares used in basic computation		21,004,426		5,576,775		20,246,449		5,576,775
Weighted-average shares effect of dilutive securities
Add: Director and employee stock options		431,762		—		305,377		—
Number of shares used in per share computations		21,436,188		5,576,775		20,551,826		5,576,775
Diluted net income per share	$	0.38	$	0.35	$	0.65	$	0.60

We did not include outstanding options to purchase the following number of shares of Class A common stock in our computation of diluted earnings per share because the exercise price of the options was greater than the average market price of our Class A common stock during the applicable period:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
Number of options to purchase Class A shares excluded		2,504,333		1,559,267		2,548,500		1,209,000

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Basis of Presentation

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Basis of Presentation

2 - Basis of Presentation

Our financial information for the interim periods included in this Form 10-Q Report is unaudited; however, such information reflects all adjustments, consisting only of normal recurring adjustments that, in the opinion of our management, are necessary for a fair presentation of our financial position, results of operations and cash flows for those interim periods. Our results of operations for the nine months ended September 30, 2014 are not necessarily indicative of the results of operations we expect for the year ending December 31, 2014.

You should read these interim financial statements in conjunction with the financial statements and the notes to our financial statements contained in our Annual Report on Form 10-K for the year ended December 31, 2013.

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Investments (Tables)

9 Months Ended

Sep. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Summary of Amortized Cost and Estimated Fair Value of Fixed Maturities and Equity Securities

The amortized cost and estimated fair values of our fixed maturities and equity securities at September 30, 2014 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	53,509	$	870	$	27	$	54,352
Obligations of states and political subdivisions		108,931		9,067		42		117,956
Corporate securities		52,171		779		227		52,723
Mortgage-backed securities		94,330		966		345		94,951
Totals	$	308,941	$	11,682	$	641	$	319,982

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	18,887	$	95	$	43	$	18,939
Obligations of states and political subdivisions		248,645		18,329		—		266,974
Corporate securities		58,209		967		41		59,135
Mortgage-backed securities		85,254		1,475		156		86,573
Fixed maturities		410,995		20,866		240		431,621
Equity securities		29,788		745		446		30,087
Totals	$	440,783	$	21,611	$	686	$	461,708

The amortized cost and estimated fair values of our fixed maturities and equity securities at December 31, 2013 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	47,946	$	—	$	870	$	47,076
Obligations of states and political subdivisions		108,435		465		446		108,454
Corporate securities		14,875		17		112		14,780
Mortgage-backed securities		69,114		33		667		68,480
Totals	$	240,370	$	515	$	2,095	$	238,790

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,272	$	118	$	57	$	14,333
Obligations of states and political subdivisions		265,783		11,779		15		277,547
Corporate securities		39,940		775		43		40,672
Mortgage-backed securities		70,259		923		82		71,100
Fixed maturities		390,254		13,595		197		403,652
Equity securities		12,168		348		93		12,423
Totals	$	402,422	$	13,943	$	290	$	416,075

Summary of Reclassifications of Fixed Maturities at Fair Value

The following table summarizes the reclassifications by type of securities at November 30, 2013:

	Amortized Cost		Estimated Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	50,627,225	$	47,914,311
Obligations of states and political subdivisions		88,456,842		79,866,801
Corporate securities		15,745,976		14,879,294
Mortgage-backed securities		72,465,250		69,567,883
Totals	$	227,295,293	$	212,228,289

Summary of Amortized Cost and Estimated Fair Value of Fixed Maturities by Contractual Maturity

We show below the amortized cost and estimated fair value of our fixed maturities at September 30, 2014 by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	3,621	$	3,633
Due after one year through five years		28,376		28,535
Due after five years through ten years		84,257		85,916
Due after ten years		98,357		106,947
Mortgage-backed securities		94,330		94,951
Total held to maturity	$	308,941	$	319,982
Available for sale
Due in one year or less	$	10,749	$	10,794
Due after one year through five years		67,063		68,322
Due after five years through ten years		119,805		126,944
Due after ten years		128,124		138,988
Mortgage-backed securities		85,254		86,573
Total available for sale	$	410,995	$	431,621

Summary of Gross Realized Gains and Losses from Investments before Applicable Income Taxes

Gross realized gains and losses from investments before applicable income taxes were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)				(in thousands)
Gross realized gains:
Fixed maturities	$	19	$	390	$	1,367	$	2,730
Equity securities		407		352		1,059		1,093
		426		742		2,426		3,823
Gross realized losses:
Fixed maturities		33		304		34		328
Equity securities		42		89		95		551
		75		393		129		879
Net realized gains	$	351	$	349	$	2,297	$	2,944

Summary of Fixed Maturities and Equity Securities with Unrealized Losses

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at September 30, 2014 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	15,007	$	60	$	2,254	$	10
Obligations of states and political subdivisions		8,119		42		—		—
Corporate securities		25,323		268		—		—
Mortgage-backed securities		34,106		210		13,535		291
Equity securities		8,319		446		—		—
Totals	$	90,874	$	1,026	$	15,789	$	301

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2013 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	50,803	$	822	$	4,642	$	104
Obligations of states and political subdivisions		65,171		363		13,405		99
Corporate securities		16,694		84		6,852		72
Mortgage-backed securities		72,878		536		19,014		213
Equity securities		1,629		93		—		—
Totals	$	207,175	$	1,898	$	43,913	$	488

Summary of Financial Information

The financial information of DFSC at September 30, 2014 and for the three and nine months then ended is unaudited.

Balance sheets:	September 30, 2014		December 31, 2013
	(in thousands)
Total assets	$	510,549	$	512,578
Total liabilities	$	430,084	$	438,649
Stockholders’ equity		80,465		73,929
Total liabilities and stockholders’ equity	$	510,549	$	512,578

	Three Months Ended September 30,				Nine Months Ended September 30,
Income statements:	2014		2013		2014		2013
	(in thousands)				(in thousands)
Net income	$	989	$	1,525	$	2,561	$	5,184

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Income Taxes

9 Months Ended

Sep. 30, 2014

Income Tax Disclosure [Abstract]

Income Taxes

10 - Income Taxes

At September 30, 2014 and December 31, 2013, respectively, we had no material unrecognized tax benefits or accrued interest and penalties. Tax years 2011 through 2013 remained open for examination at September 30, 2014. We provide a valuation allowance when we believe it is more likely than not that we will not realize some portion of our tax asset. We established a valuation allowance of $440,778 related to a portion of the net operating loss carryforward of Le Mars at January 1, 2004. We have determined that we are not required to establish a valuation allowance for our other net deferred tax assets of $41.5 million and $39.6 million at September 30, 2014 and December 31, 2013, respectively, because it is more likely than not that we will realize these deferred tax assets through reversals of existing temporary differences, future taxable income and the implementation of tax planning strategies. We also have a net operating loss carryforward of $4.7 million related to Le Mars, which will begin to expire in 2020 if not previously utilized. This carryforward is subject to an annual limitation in the amount that we can use in any one year of approximately $376,000. We also have an alternative minimum tax credit carryforward of $10.0 million with an indefinite life.

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Segment Information

9 Months Ended

Sep. 30, 2014

Segment Reporting [Abstract]

Segment Information

6 - Segment Information

We evaluate the performance of our personal lines and commercial lines segments based upon the underwriting results of our insurance subsidiaries using statutory accounting principles (“SAP”) that various state insurance departments prescribe or permit. Our management uses SAP to measure the performance of our insurance subsidiaries instead of United States generally accepted accounting principles (“GAAP”). Financial data by segment is as follows:

	Three Months Ended September 30,
	2014		2013
	(in thousands)
Revenues:
Premiums earned
Commercial lines	$	59,221	$	52,040
Personal lines		82,929		78,605
GAAP premiums earned		142,150		130,645
Net investment income		4,299		4,624
Realized investment gains		351		349
Equity in earnings of DFSC		477		735
Other		1,858		1,982
Total revenues	$	149,135	$	138,335
Income before income taxes:
Underwriting income (loss):
Commercial lines	$	2,383	$	2,537
Personal lines		1,415		(961	)
SAP underwriting income		3,798		1,576
GAAP adjustments		730		1,509
GAAP underwriting income		4,528		3,085
Net investment income		4,299		4,624
Realized investment gains		351		349
Equity in earnings of DFSC		477		735
Other		959		721
Income before income taxes	$	10,614	$	9,514

	Nine Months Ended September 30,
	2014			2013
	(in thousands)
Revenues:
Premiums earned
Commercial lines	$	170,263		$	149,283
Personal lines		242,024			233,027
GAAP premiums earned		412,287			382,310
Net investment income		13,529			14,110
Realized investment gains		2,297			2,944
Equity in earnings of DFSC		1,235			2,500
Other		5,608			5,851
Total revenues	$	434,956		$	407,715
Income before income taxes:
Underwriting loss:
Commercial lines	$	(8,792	)	$	(2,133	)
Personal lines		(5,544	)		(4,185	)
SAP underwriting loss		(14,336	)		(6,318	)
GAAP adjustments		7,130			5,849
GAAP underwriting loss		(7,206	)		(469	)
Net investment income		13,529			14,110
Realized investment gains		2,297			2,944
Equity in earnings of DFSC		1,235			2,500
Other		2,286			1,375
Income before income taxes	$	12,141		$	20,460

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Reinsurance

9 Months Ended

Sep. 30, 2014

Insurance [Abstract]

Reinsurance

4 - Reinsurance

Atlantic States and Donegal Mutual have participated in a pooling agreement since 1986 under which each company places all of its direct written premiums into the pool, and Atlantic States and Donegal Mutual then share the underwriting results of the pool in accordance with the terms of the pooling agreement. Atlantic States has an 80% share of the results of the pool, and Donegal Mutual has a 20% share of the results of the pool.

Our insurance subsidiaries and Donegal Mutual purchase certain third-party reinsurance on a combined basis. Le Mars, MICO, Peninsula and Sheboygan also purchase separate third-party reinsurance that provides coverage that we believe is commensurate with their relative size and exposures. Our insurance subsidiaries use several different reinsurers, all of which, consistent with requirements of our insurance subsidiaries and Donegal Mutual, have an A.M. Best rating of A- (Excellent) or better or, with respect to foreign reinsurers, have a financial condition that, in the opinion of our management, is equivalent to a company with at least an A- rating from A.M. Best. The following information describes the external reinsurance our insurance subsidiaries have in place for 2014:

• excess of loss reinsurance, under which losses are automatically reinsured, through a series of reinsurance agreements, over a set retention (generally $1.0 million), and

• catastrophe reinsurance, under which Donegal Mutual, Atlantic States and Southern recover, through a series of reinsurance agreements, 100% of an accumulation of many losses resulting from a single event, including natural disasters, over a set retention (generally $5.0 million) and after exceeding an annual aggregate deductible (generally $1.5 million) up to aggregate losses of $149.0 million per occurrence.

Our insurance subsidiaries and Donegal Mutual also purchase facultative reinsurance to cover exposures from losses that exceed the limits their third-party reinsurance agreements provide.

MICO maintains a quota-share reinsurance agreement with third-party reinsurers to reduce its net exposures. Effective January 1, 2014, the quota-share reinsurance percentage was 20%.

In addition to the pooling agreement and third-party reinsurance, our insurance subsidiaries have various reinsurance agreements with Donegal Mutual.

Other than the changes we discuss above, we have made no significant changes to our third-party reinsurance or the reinsurance agreements between our insurance subsidiaries and Donegal Mutual during the nine months ended September 30, 2014.

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Investments

9 Months Ended

Sep. 30, 2014

Investments, Debt and Equity Securities [Abstract]

Investments

5 - Investments

The amortized cost and estimated fair values of our fixed maturities and equity securities at September 30, 2014 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	53,509	$	870	$	27	$	54,352
Obligations of states and political subdivisions		108,931		9,067		42		117,956
Corporate securities		52,171		779		227		52,723
Mortgage-backed securities		94,330		966		345		94,951
Totals	$	308,941	$	11,682	$	641	$	319,982

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	18,887	$	95	$	43	$	18,939
Obligations of states and political subdivisions		248,645		18,329		—		266,974
Corporate securities		58,209		967		41		59,135
Mortgage-backed securities		85,254		1,475		156		86,573
Fixed maturities		410,995		20,866		240		431,621
Equity securities		29,788		745		446		30,087
Totals	$	440,783	$	21,611	$	686	$	461,708

At September 30, 2014, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $280.6 million and an amortized cost of $261.4 million. Our holdings at September 30, 2014 also included special revenue bonds with an aggregate fair value of $104.3 million and an amortized cost of $96.2 million. With respect to both categories of these bonds, we held no securities of any issuer that constituted more than 10% of the category at September 30, 2014. Education bonds and water and sewer utility bonds represented 57% and 25%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at September 30, 2014. Many of the issuers of the special revenue bonds we held at September 30, 2014 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

The amortized cost and estimated fair values of our fixed maturities and equity securities at December 31, 2013 were as follows:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Held to Maturity
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	47,946	$	—	$	870	$	47,076
Obligations of states and political subdivisions		108,435		465		446		108,454
Corporate securities		14,875		17		112		14,780
Mortgage-backed securities		69,114		33		667		68,480
Totals	$	240,370	$	515	$	2,095	$	238,790

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Estimated Fair Value
	(in thousands)
Available for Sale
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,272	$	118	$	57	$	14,333
Obligations of states and political subdivisions		265,783		11,779		15		277,547
Corporate securities		39,940		775		43		40,672
Mortgage-backed securities		70,259		923		82		71,100
Fixed maturities		390,254		13,595		197		403,652
Equity securities		12,168		348		93		12,423
Totals	$	402,422	$	13,943	$	290	$	416,075

At December 31, 2013, our holdings of obligations of states and political subdivisions included general obligation bonds with an aggregate fair value of $294.1 million and an amortized cost of $284.9 million. Our holdings also included special revenue bonds with an aggregate fair value of $91.9 million and an amortized cost of $89.3 million. With respect to both categories, we held no securities of any issuer that constituted more than 10% of the category at December 31, 2013. Education bonds and water and sewer utility bonds represented 56% and 23%, respectively, of our total investments in special revenue bonds based on the carrying values of these investments at December 31, 2013. Many of the issuers of the special revenue bonds we held at December 31, 2013 have the authority to impose ad valorem taxes. In that respect, many of the special revenue bonds we held are similar to general obligation bonds.

We made reclassifications from available for sale to held to maturity of fixed maturities at fair value on November 30, 2013. The following table summarizes the reclassifications by type of securities at November 30, 2013:

	Amortized Cost		Estimated Fair Value
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	50,627,225	$	47,914,311
Obligations of states and political subdivisions		88,456,842		79,866,801
Corporate securities		15,745,976		14,879,294
Mortgage-backed securities		72,465,250		69,567,883
Totals	$	227,295,293	$	212,228,289

We have segregated within accumulated other comprehensive income the net unrealized losses of $15.1 million arising prior to the November 30, 2013 reclassification date for fixed maturities reclassified from available for sale to held to maturity. We will amortize this balance over the remaining life of the related securities as an adjustment to yield in a manner consistent with the accretion of discount on the same fixed maturities. During the nine months ended September 30, 2014, we recorded amortization of $945,783 in accumulated other comprehensive income. At September 30, 2014 and December 31, 2013, net unrealized losses of $14.0 million and $15.0 million, respectively, remained within accumulated other comprehensive income.

We show below the amortized cost and estimated fair value of our fixed maturities at September 30, 2014 by contractual maturity. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.

	Amortized Cost		Estimated Fair Value
	(in thousands)
Held to maturity
Due in one year or less	$	3,621	$	3,633
Due after one year through five years		28,376		28,535
Due after five years through ten years		84,257		85,916
Due after ten years		98,357		106,947
Mortgage-backed securities		94,330		94,951
Total held to maturity	$	308,941	$	319,982
Available for sale
Due in one year or less	$	10,749	$	10,794
Due after one year through five years		67,063		68,322
Due after five years through ten years		119,805		126,944
Due after ten years		128,124		138,988
Mortgage-backed securities		85,254		86,573
Total available for sale	$	410,995	$	431,621

Gross realized gains and losses from investments before applicable income taxes were as follows:

	Three Months Ended September 30,				Nine Months Ended September 30,
	2014		2013		2014		2013
	(in thousands)				(in thousands)
Gross realized gains:
Fixed maturities	$	19	$	390	$	1,367	$	2,730
Equity securities		407		352		1,059		1,093
		426		742		2,426		3,823
Gross realized losses:
Fixed maturities		33		304		34		328
Equity securities		42		89		95		551
		75		393		129		879
Net realized gains	$	351	$	349	$	2,297	$	2,944

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at September 30, 2014 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	15,007	$	60	$	2,254	$	10
Obligations of states and political subdivisions		8,119		42		—		—
Corporate securities		25,323		268		—		—
Mortgage-backed securities		34,106		210		13,535		291
Equity securities		8,319		446		—		—
Totals	$	90,874	$	1,026	$	15,789	$	301

We held fixed maturities and equity securities with unrealized losses representing declines that we considered temporary at December 31, 2013 as follows:

	Less Than 12 Months				More Than 12 Months
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
			(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	50,803	$	822	$	4,642	$	104
Obligations of states and political subdivisions		65,171		363		13,405		99
Corporate securities		16,694		84		6,852		72
Mortgage-backed securities		72,878		536		19,014		213
Equity securities		1,629		93		—		—
Totals	$	207,175	$	1,898	$	43,913	$	488

We make estimates concerning the valuation of our investments and the recognition of other-than-temporary declines in the value of our investments. For equity securities, we write down the investment to its fair value, and we reflect the amount of the write-down as a realized loss in our results of operations when we consider the decline in value of an individual investment to be other than temporary. We individually monitor all investments for other-than-temporary declines in value. Generally, we assume there has been an other-than-temporary decline in value if an individual equity security has depreciated in value by more than 20% of original cost and has been in such an unrealized loss position for more than six months. We held 12 equity securities that were in an unrealized loss position at September 30, 2014. Based upon our analysis of general market conditions and underlying factors impacting these equity securities, we considered these declines in value to be temporary. With respect to a debt security that is in an unrealized loss position, we first assess if we intend to sell the debt security. If we determine we intend to sell the debt security, we recognize the impairment loss in our results of operations. If we do not intend to sell the debt security, we determine whether it is more likely than not that we will be required to sell the debt security prior to recovery. If we determine it is more likely than not that we will be required to sell the debt security prior to recovery, we recognize an impairment loss in our results of operations. If we determine it is more likely than not that we will not be required to sell the debt security prior to recovery, we then evaluate whether a credit loss has occurred. We determine whether a credit loss has occurred by comparing the amortized cost of the debt security to the present value of the cash flows we expect to collect. If we expect a cash flow shortfall, we consider that a credit loss has occurred. If we determine that a credit loss has occurred, we consider the impairment to be other than temporary. We then recognize the amount of the impairment loss related to the credit loss in our results of operations, and we recognize the remaining portion of the impairment loss in our other comprehensive income, net of applicable taxes. In addition, we may write down securities in an unrealized loss position based on a number of other factors, including when the fair value of an investment is significantly below its cost, when the financial condition of the issuer of a security has deteriorated, the occurrence of industry, company or geographic events that have negatively impacted the value of a security and rating agency downgrades. We held 108 debt securities that were in an unrealized loss position at September 30, 2014. Based upon our analysis of general market conditions and underlying factors impacting these debt securities, we considered these declines in value to be temporary.

We amortize premiums and discounts on debt securities over the life of the security as an adjustment to yield using the effective interest method. We compute realized investment gains and losses using the specific identification method.

We amortize premiums and discounts on mortgage-backed debt securities using anticipated prepayments.

We account for investments in our affiliates using the equity method of accounting. Under this method, we record our investment at cost, with adjustments for our share of our affiliates’ earnings and losses as well as changes in the equity of our affiliates due to unrealized gains and losses. Our investments in affiliates include our 48.2% ownership interest in DFSC. We include our share of DFSC’s net income in our results of operations. We have compiled the following summary financial information for DFSC at September 30, 2014 and December 31, 2013 and for the three months and nine months ended September 30, 2014 and 2013, respectively, from the financial statements of DFSC. The financial information of DFSC at September 30, 2014 and for the three and nine months then ended is unaudited.

Balance sheets:	September 30, 2014		December 31, 2013
	(in thousands)
Total assets	$	510,549	$	512,578
Total liabilities	$	430,084	$	438,649
Stockholders’ equity		80,465		73,929
Total liabilities and stockholders’ equity	$	510,549	$	512,578

	Three Months Ended September 30,				Nine Months Ended September 30,
Income statements:	2014		2013		2014		2013
	(in thousands)				(in thousands)
Net income	$	989	$	1,525	$	2,561	$	5,184

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Borrowings

9 Months Ended

Sep. 30, 2014

Debt Disclosure [Abstract]

Borrowings

7 - Borrowings

Lines of Credit

In June 2014, we renewed our existing credit agreement with Manufacturers and Traders Trust Company (“M&T”) relating to a $60.0 million unsecured, revolving line of credit. The line of credit expires in July 2017. We have the right to request a one-year extension of the credit agreement as of each anniversary date of the agreement. At September 30, 2014, we had $41.0 million in outstanding borrowings and had the ability to borrow an additional $19.0 million at interest rates equal to M&T’s current prime rate or the then current LIBOR rate plus 2.25%. The interest rate on our outstanding borrowings is adjustable quarterly. At September 30, 2014, the interest rate on our outstanding borrowings from M&T was 2.41%. We pay a fee of 0.2% per annum on the loan commitment amount regardless of usage. The credit agreement requires our compliance with certain covenants. These covenants include minimum levels of our net worth, leverage ratio, statutory surplus and the A.M. Best ratings of our insurance subsidiaries. We were in compliance with all requirements of the credit agreement during the nine months ended September 30, 2014.

MICO is a member of the Federal Home Loan Bank (“FHLB”) of Indianapolis. Through its membership, MICO has the ability to issue debt to the FHLB of Indianapolis in exchange for cash advances. MICO had no outstanding borrowings with the FHLB of Indianapolis at December 31, 2013 or September 30, 2014. The table below presents the amount of FHLB of Indianapolis stock MICO purchased, collateral pledged and assets related to MICO’s membership at September 30, 2014.

FHLB of Indianapolis stock purchased and owned as part of the agreement	$	252,100
Collateral pledged, at par (carrying value $2,467,278)		3,700,000
Borrowing capacity currently available		2,122,425

Atlantic States is a member of the FHLB of Pittsburgh. Through its membership, Atlantic States has the ability to issue debt to the FHLB of Pittsburgh in exchange for cash advances. In the first quarter of 2013, Atlantic States issued secured debt in the principal amount of $15.0 million to the FHLB of Pittsburgh in exchange for cash advances in the amount of $15.0 million. The interest rate on the advances was .32% at September 30, 2014. The table below presents the amount of FHLB of Pittsburgh stock Atlantic States purchased, collateral pledged and assets related to Atlantic States’ membership in the FHLB of Pittsburgh at September 30, 2014.

FHLB of Pittsburgh stock purchased and owned as part of the agreement	$	941,700
Collateral pledged, at par (carrying value $16,546,900)		20,500,000
Borrowing capacity currently available		810,756

Subordinated Debentures

In January 2002, West Bend Mutual Insurance Company (“West Bend”), the prior owner of MICO, purchased a $5.0 million surplus note from MICO at face value to increase MICO’s statutory surplus. On December 1, 2010, Donegal Mutual purchased the surplus note from West Bend at face value in connection with our acquisition of MICO. The surplus note carries an interest rate of 5.00%, and any repayment of principal or payment of interest on the surplus note requires prior approval of the Michigan Department of Insurance and Financial Services.

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Investments - Summary of Reclassifications of Fixed Maturities at Fair Value (Detail) (USD $)	Sep. 30, 2014	Dec. 31, 2013	Nov. 30, 2013
Schedule of Equity Method Investments [Line Items]
Transfers from available for sale to held to maturity, Amortized Cost			$ 227,295,293
Transfers from available for sale to held to maturity, Estimated Fair Value	319,982,000	238,790,000	212,228,289
U.S. Treasury Securities and Obligations of U.S. Government Corporations and Agencies [Member]
Schedule of Equity Method Investments [Line Items]
Transfers from available for sale to held to maturity, Amortized Cost			50,627,225
Transfers from available for sale to held to maturity, Estimated Fair Value	54,352,000	47,076,000	47,914,311
Obligations of States and Political Subdivisions [Member]
Schedule of Equity Method Investments [Line Items]
Transfers from available for sale to held to maturity, Amortized Cost			88,456,842
Transfers from available for sale to held to maturity, Estimated Fair Value	117,956,000	108,454,000	79,866,801
Corporate Securities [Member]
Schedule of Equity Method Investments [Line Items]
Transfers from available for sale to held to maturity, Amortized Cost			15,745,976
Transfers from available for sale to held to maturity, Estimated Fair Value	52,723,000	14,780,000	14,879,294
Mortgage-Backed Securities [Member]
Schedule of Equity Method Investments [Line Items]
Transfers from available for sale to held to maturity, Amortized Cost			72,465,250
Transfers from available for sale to held to maturity, Estimated Fair Value	$ 94,951,000	$ 68,480,000	$ 69,567,883

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Impact of New Accounting Standards (Policies)

9 Months Ended

Sep. 30, 2014

Accounting Changes and Error Corrections [Abstract]

Other Comprehensive Income

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance that requires an entity to provide information about amounts it reclassifies out of accumulated other comprehensive income. If GAAP requires an entity to reclassify amounts out of accumulated other comprehensive income to net income in their entirety in the same reporting period, the guidance requires an entity to present significant amounts it reclassifies out of accumulated other comprehensive income by the respective line items of net income, either on the face of the statement where the entity presents net income or in the notes to the entity’s financial statements,. For other amounts that GAAP does not require an entity to reclassify to net income in their entirety, the guidance requires an entity to cross-reference such amounts to other disclosures GAAP requires that provide additional detail about those amounts. The guidance was effective for interim and annual reporting periods after December 15, 2012. We adopted this new guidance as of January 1, 2013. Our adoption of this new guidance did not impact our financial position, results of operations or cash flows.

In July 2013, the FASB issued a new standard that requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward or similar tax loss or tax credit carryforward, rather than as a liability, when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law of the applicable jurisdiction and when the entity intends to use the deferred tax asset for that purpose. The new standard was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this new guidance as of January 1, 2014. Our adoption of this new standard did not impact our financial position, results of operations or cash flows.

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Fair Value Measurements (Tables)

9 Months Ended

Sep. 30, 2014

Fair Value Disclosures [Abstract]

Fair Value Measurements for Investments in Available-for-Sale Fixed Maturity and Equity Securities

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at September 30, 2014:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	18,939	$	—	$	18,939	$	—
Obligations of states and political subdivisions		266,974		—		266,974		—
Corporate securities		59,135		—		59,135		—
Mortgage-backed securities		86,573		—		86,573		—
Equity securities		30,087		20,487		9,600		—
Totals	$	461,708	$	20,487	$	441,221	$	—

We did not transfer any investments between Levels 1 and 2 during the nine months ended September 30, 2014.

The following table presents our fair value measurements for our investments in available-for-sale fixed maturity and equity securities at December 31, 2013:

			Fair Value Measurements Using
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
	(in thousands)
U.S. Treasury securities and obligations of U.S. government corporations and agencies	$	14,333	$	—	$	14,333	$	—
Obligations of states and political subdivisions		277,547		—		277,547		—
Corporate securities		40,672		—		40,672		—
Mortgage-backed securities		71,100		—		71,100		—
Equity securities		12,423		6,468		5,955		—
Totals	$	416,075	$	6,468	$	409,607	$	—

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Borrowings - Amount of FHLB of Indianapolis/Pittsburgh Stock Purchased, Collateral Pledged and Assets Related to MICO's/Atlantic States Agreement (Detail) (Lines of Credit [Member], USD $)	Sep. 30, 2014
MICO [Member] | Indianapolis [Member]
Amount of FHLB of Indianapolis/Pittsburgh stock purchased, collateral pledged and assets related to MICO's/Atlantic States Agreement
FHLB stock purchased and owned as part of the agreement	$ 252,100
Collateral pledged, at par	3,700,000
Borrowing capacity currently available	2,122,425
Atlantic States [Member] | Pittsburgh [Member]
Amount of FHLB of Indianapolis/Pittsburgh stock purchased, collateral pledged and assets related to MICO's/Atlantic States Agreement
FHLB stock purchased and owned as part of the agreement	941,700
Collateral pledged, at par	20,500,000
Borrowing capacity currently available	$ 810,756

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Consolidated Statements of Income (Parenthetical) (USD $)	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013
Net realized investment gains	$ 351,269	$ 349,164	$ 2,296,909	$ 2,943,710
Income tax expense	1,865,113	1,860,474	2,087,553	3,701,498
Reclassification out of Accumulated Other Comprehensive Income (Loss) [Member]
Net realized investment gains	351,269	349,164	2,296,909	2,943,710
Income tax expense	$ 119,431	$ 118,715	$ 780,949	$ 1,000,861

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Organization

9 Months Ended

Sep. 30, 2014

Accounting Policies [Abstract]

Organization

1 - Organization

Donegal Mutual Insurance Company (“Donegal Mutual”) organized us as an insurance holding company on August 26, 1986. Our insurance subsidiaries, Atlantic States Insurance Company (“Atlantic States”), Southern Insurance Company of Virginia (“Southern”), Le Mars Insurance Company (“Le Mars”), the Peninsula Insurance Group (“Peninsula”), which consists of Peninsula Indemnity Company and The Peninsula Insurance Company, Sheboygan Falls Insurance Company (“Sheboygan”) and Michigan Insurance Company (“MICO”), write personal and commercial lines of property and casualty coverages exclusively through a network of independent insurance agents in certain Mid-Atlantic, Midwestern, New England and Southern states. We also own 48.2% of the outstanding stock of Donegal Financial Services Corporation (“DFSC”), a grandfathered unitary savings and loan holding company that owns Union Community Bank (“UCB”), a state savings bank. UCB has 14 banking offices, all of which are located in Lancaster County, Pennsylvania. Donegal Mutual owns the remaining 51.8% of the outstanding stock of DFSC.

We have four segments: our investment function, our personal lines of insurance, our commercial lines of insurance and our investment in DFSC. The personal lines products of our insurance subsidiaries consist primarily of homeowners and private passenger automobile policies. The commercial lines products of our insurance subsidiaries consist primarily of commercial automobile, commercial multi-peril and workers’ compensation policies.

At September 30, 2014, Donegal Mutual held approximately 36% of our outstanding Class A common stock and approximately 76% of our outstanding Class B common stock. This ownership provides Donegal Mutual with approximately 65% of the total voting power of our common stock. We believe Donegal Mutual’s voting control is beneficial to us for the reasons we describe in our Annual Report on Form 10-K. Our insurance subsidiaries and Donegal Mutual have interrelated operations due to a pooling agreement and other intercompany agreements and transactions. While each company maintains its separate corporate existence, our insurance subsidiaries and Donegal Mutual conduct business together as the Donegal Insurance Group. As such, Donegal Mutual and our insurance subsidiaries share the same business philosophy, the same management, the same employees and the same facilities and offer the same types of insurance products.

Atlantic States, our largest subsidiary, participates in a pooling agreement with Donegal Mutual. Under the pooling agreement, the two companies pool their insurance business and each company receives an allocated percentage of the pooled business. Atlantic States has an 80% share of the results of the pooled business, and Donegal Mutual has a 20% share of the results of the pooled business.

The same executive management and underwriting personnel administer products, classes of business underwritten, pricing practices and underwriting standards of Donegal Mutual and our insurance subsidiaries. In addition, as the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries share a combined business plan to achieve market penetration and underwriting profitability objectives. The products our insurance subsidiaries and Donegal Mutual market are generally complementary, thereby allowing the Donegal Insurance Group to offer a broader 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 generally relate to specific risk profiles targeted within similar classes of business, such as preferred tier versus standard tier products, but we do not allocate all of the standard risk gradients to one company. Therefore, the underwriting profitability of the business the individual companies write directly will vary. However, as the risk characteristics of all business Donegal Mutual and Atlantic States write directly are homogenized within the underwriting pool, Donegal Mutual and Atlantic States share the underwriting results in proportion to their respective participation in the pool. Pooled business represents the predominant percentage of the net underwriting activity of both Donegal Mutual and Atlantic States.

On February 23, 2009, our board of directors authorized a share repurchase program pursuant to which we may purchase up to 300,000 shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the Securities and Exchange Commission (the “SEC”) and in privately negotiated transactions. We purchased 846 and 4,240 shares of our Class A common stock under this program during the nine months ended September 30, 2014 and 2013, respectively. We have purchased a total of 296,778 shares of our Class A common stock under this program from its inception through September 30, 2014.

On July 18, 2013, our board of directors authorized a share repurchase program pursuant to which we have the authority to purchase up to 500,000 additional shares of our Class A common stock at prices prevailing from time to time in the open market subject to the provisions of applicable rules of the SEC and in privately negotiated transactions. We did not purchase any shares of our Class A common stock under this program during the nine months ended September 30, 2014 or 2013.

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Organization - Additional Information (Detail)	9 Months Ended				67 Months Ended		9 Months Ended			9 Months Ended
	Sep. 30, 2014 Office Segment	Sep. 30, 2014 Class A common stock [Member]	Sep. 30, 2014 Class A common stock [Member] Stock Repurchase Program One [Member]	Sep. 30, 2013 Class A common stock [Member] Stock Repurchase Program One [Member]	Sep. 30, 2014 Class A common stock [Member] Stock Repurchase Program One [Member]	Feb. 23, 2009 Class A common stock [Member] Stock Repurchase Program One [Member]	Sep. 30, 2014 Class A common stock [Member] Stock Repurchase Program Two [Member]	Sep. 30, 2013 Class A common stock [Member] Stock Repurchase Program Two [Member]	Jul. 18, 2013 Class A common stock [Member] Stock Repurchase Program Two [Member]	Sep. 30, 2014 Class B common stock [Member]
Business Acquisition [Line Items]
Operations Commenced Date	Aug. 26, 1986
Outstanding stock percentage	48.20%
Stock ownership percentage owned by third party	51.80%
Number of banking offices	14
Number of operating segments	4
Stock ownership percentage held by major shareholder		36.00%								76.00%
Voting power percentage of outstanding common stock	65.00%
Percentage of share in results of pooled business	80.00%
Percentage of share in results of pooled business owned by third party	20.00%
Number of common stock shares purchased						300,000			500,000
Common stock shares purchased			846	4,240	296,778		0	0

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Investments - Summary of Financial Information (Detail) (Donegal Financial Services Corporation [Member], USD $) In Thousands, unless otherwise specified	3 Months Ended		9 Months Ended
	Sep. 30, 2014	Sep. 30, 2013	Sep. 30, 2014	Sep. 30, 2013	Dec. 31, 2013
Donegal Financial Services Corporation [Member]
Balance sheets:
Total assets	$ 510,549		$ 510,549		$ 512,578
Total liabilities	430,084		430,084		438,649
Stockholders' equity	80,465		80,465		73,929
Total liabilities and stockholders' equity	510,549		510,549		512,578
Income statements:
Net income	$ 989	$ 1,525	$ 2,561	$ 5,184

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Impact of New Accounting Standards

9 Months Ended

Sep. 30, 2014

Accounting Changes and Error Corrections [Abstract]

Impact of New Accounting Standards

11 - Impact of New Accounting Standards

In February 2013, the Financial Accounting Standards Board (“FASB”) issued guidance that requires an entity to provide information about amounts it reclassifies out of accumulated other comprehensive income. If GAAP requires an entity to reclassify amounts out of accumulated other comprehensive income to net income in their entirety in the same reporting period, the guidance requires an entity to present significant amounts it reclassifies out of accumulated other comprehensive income by the respective line items of net income, either on the face of the statement where the entity presents net income or in the notes to the entity’s financial statements,. For other amounts that GAAP does not require an entity to reclassify to net income in their entirety, the guidance requires an entity to cross-reference such amounts to other disclosures GAAP requires that provide additional detail about those amounts. The guidance was effective for interim and annual reporting periods after December 15, 2012. We adopted this new guidance as of January 1, 2013. Our adoption of this new guidance did not impact our financial position, results of operations or cash flows.

In July 2013, the FASB issued a new standard that requires an entity to present an unrecognized tax benefit as a reduction of a deferred tax asset for a net operating loss carryforward or similar tax loss or tax credit carryforward, rather than as a liability, when the uncertain tax position would reduce the net operating loss or other carryforward under the tax law of the applicable jurisdiction and when the entity intends to use the deferred tax asset for that purpose. The new standard was effective for fiscal years, and interim periods within those years, beginning after December 15, 2013. We adopted this new guidance as of January 1, 2014. Our adoption of this new standard did not impact our financial position, results of operations or cash flows.