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    FIRM and AFFILIATE OFFICES

                                  Duane Morris

    NEW YORK

    LONDON

    CHICAGO

    FREDERICK W. DREHER

    HOUSTON

    DIRECT DIAL: 215.979.1234

    PHILADELPHIA

    PERSONAL FAX: 215.979.1213

    SAN FRANCISCO

    E-MAIL: fwdreher@duanemorris.com

    SAN DIEGO

    BOSTON

    WASHINGTON, DC

    ATLANTA

    MIAMI

    NEWARK

    August 5, 2005

    PITTSBURGH

    DETROIT

    ALLENTOWN

    WILMINGTON

    HARRISBURG

    PRINCETON

    PALM BEACH

    WESTCHESTER

Securities and Exchange Commission

100 F Street, N.E.

Washington, D.C. 20549

Attention: Jim B. Rosenberg

                  Senior Assistant Chief Accountant

    Re:

    Donegal Group Inc.

    Form 10-K for Fiscal Year Ended December 31, 2004

    File No. 0-15341

Ladies and Gentlemen:

     On behalf of Donegal Group Inc. (“DGI”), we are responding to the comments you raised in your
June 24, 2005 letter to DGI. One of our partners, Kathleen M. Shay, had previously advised you
that DGI’s response would be forthcoming as of July 31, 2005 and has subsequently advised you that
DGI’s response will be submitted on August 5, 2005.

     For convenience in responding to your letter, we have included the text of each of your
comments in italics followed by DGI’s response to that comment.

Liabilities for Losses and Loss Expenses, page 15

    1.

    In your disclosure supporting the Industry Guide 6 table, you state that loss data in the
table includes business allocated from the Mutual Company. Please provide us information
about the changes in your pool participation percentages and any other terms of your pooling
and reinsurance arrangements and the related impact on your loss reserves over the ten year
period. If the impact of those changes is material, tell us why you did not discuss
reinsurance transactions or changes in such terms as required by Section 2A of Industry Guide
6.

    Duane Morris llp

    ONE LIBERTY PLACE       PHILADELPHIA, PA 19103-7396

    PHONE: 215.979.1000       FAX: 215.979.1020

Securities and Exchange Commission

Page 2

August 5, 2005

     DGI, an insurance holding company since its formation in 1986, through DGI’s wholly owned
subsidiary, Atlantic States Insurance Company (“Atlantic States”), has participated in an
inter-company pooling agreement since 1986 with Donegal Mutual Insurance Company (the “Mutual
Company”). Both Atlantic States and the Mutual Company place all of their direct business into the
pool, and Atlantic States and the Mutual Company then proportionately share the pooled business in
accordance with the terms of the pooling agreement. There have been no changes to the terms of the
pooling agreement during the past four years. Since the business in the pool is homogenous (i.e.,
Atlantic States has a 70% share of the entire pool and the Mutual Company has a 30% share of the
entire pool), management believes that pooling transactions between Atlantic States and the Mutual
Company have had no substantial disproportionate impact on the loss reserves of either company.
DGI does not anticipate any significant changes in the pooling and reinsurance agreements with the
Mutual Company, including changes in its pool participation levels in the foreseeable future. The
following table sets forth, by percentage, the proportionate share of the pool for Atlantic States
and the Mutual Company in each of the past ten years:

    Percentage of Pool to

    Year Ended December 31

    Mutual Company

    Atlantic States (DGI)

    2004

    30
    %

    70
    %

    2003

    30

    70

    2002

    30

    70

    2001

    30

    70

    2000 (effective July 1)

    30

    70

    2000 (to June 30)

    35

    65

    1999

    35

    65

    1998

    35

    65

    1997

    35

    65

    1996

    35

    65

    1995

    40

    60

     Given the small size of the changes in the relative pool percentages, with only two changes
aggregating 10% over the last ten years, an average of 1% per year, management does not consider
the impact to be material or require additional public disclosure.

     The same conclusion that no additional disclosure is required comes from an analysis of the
relative amounts of loss and loss expense reserves assumed through the operation of the pooling
agreement. The relative sharing of loss and loss expense reserves between the
Mutual Company and DGI has not changed significantly over the past ten years as a result of

Securities and Exchange Commission

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August 5, 2005

changes to the pooling agreement; however, the relative percentage of DGI’s share of pooled loss
and loss expense reserves to DGI’s gross (direct and assumed) liability for losses and loss
expenses has decreased slightly over the past several years as a result of acquisitions by DGI.
The following table indicates the assumed pool reserves of DGI as a percentage of its gross
liability for losses and loss expenses:

    As of

    Reserves Assumed

    December 31

    From Pool

    Gross Reserves

    Percentage

    (dollars in thousands)

    2004

    $
    127,128

    $
    267,190

    48
    %(1)

    2003

    121,298

    217,914

    56

    2002

    113,851

    210,692

    54

    2001

    99,664

    179,840

    55

    2000

    84,806

    156,476

    54

    1999

    80,259

    149,979

    54

    1998

    76,499

    141,409

    54
    (2)

    1997

    74,631

    118,112

    63

    1996

    71,281

    110,023

    65

    1995

    66,021

    97,234

    68

    (1)

    Reduction primarily attributable to DGI’s January 1, 2004 acquisitions
of Le Mars Insurance Company (“Le Mars”) and Peninsula Insurance Group
(“Peninsula”).

    (2)

    Reduction primarily attributable to DGI’s November 1, 1998 acquisition
of Southern Heritage Insurance Company.

     Excluding reserves of entities acquired by DGI in 2004, DGI’s percentage of assumed pool
reserves to gross reserves was 54% in 2004.

     Over the past ten years, DGI has implemented various changes to its third-party reinsurance
and other reinsurance agreements with the Mutual Company to reflect changes in its business profile
due to premium growth and acquisitions. These changes have included modest increases in retentions
and increased catastrophe and casualty excess of loss coverages. DGI does not believe that these
changes have materially impacted its loss and loss expense reserves. DGI’s third-party reinsurance
is discussed more fully in the response to your Comment 11.

Securities and Exchange Commission

Page 4

August 5, 2005

     DGI believes that neither the impact of year-to-year changes in the percentage of assumed to
gross liabilities for losses and loss expenses, nor the impact of other changes in the reinsurance
agreements between the Mutual Company and DGI (as described in detail in DGI’s 2004 Annual Report,
Note 3 – Transactions with Affiliates), on the one hand, and DGI and its external reinsurers, on
the other hand, are of sufficient substance or materiality as to require additional disclosure in
DGI’s SEC filings.

     However, as a matter of achieving higher-quality disclosures in its SEC filings, DGI will
expand its footnote disclosure to include additional information about its third party reinsurance
and the impact of the pooling agreement and other reinsurance agreements with the Mutual Company in
future filings with the SEC, starting with its Form 10-Q for the quarter ended June 30, 2005.

Exhibit 13 – Annual Report to Shareholders

Management’s Discussion and Analysis

Critical Accounting Policies and Estimates, page 10

    2.

    This disclosure should provide investors with a fuller understanding of the uncertainties in
applying critical accounting policies and the likelihood that materially different amounts
would be reported under different conditions or using different assumptions. It should
include quantification of the related variability in operating results that you expect to be
reasonably likely to occur. Please provide us information about the uncertainties in applying
these accounting policies, the historical accuracy of these critical accounting estimates, a
quantification of their sensitivity to changes in key assumptions and the expected likelihood
of material changes in the future. Tell us why you have not provided these disclosures in
your filing. Please refer to the next comment for your critical accounting estimates related
to losses and loss expenses.

     Although DGI makes estimates in determining other-than-temporary declines in its investment
portfolio, the computation of its deferred policy acquisition costs and its liability for guaranty
fund liability accruals, it has been DGI’s historical experience that such estimates have not shown
material variability because of uncertainties in applying accounting principles or as a result of
sensitivities to changes in key assumptions. However, as a matter of achieving higher-quality
disclosure to investors, DGI will expand its MD&A disclosure to include additional information
about the variability of these estimates in its future filings with the SEC, starting with its Form
10-Q for the quarter ended June 30, 2005. Reference is also made to DGI’s response to your Comment
3.

Securities and Exchange Commission

Page 5

August 5, 2005

    3.

    Disclosures explaining the likelihood that materially different amounts would be reported
under different conditions or using different assumptions are consistent with the objective of
Management’s Discussion and Analysis. Your disclosure regarding losses and loss expenses does
not appear to include an adequate explanation of the judgments and uncertainties surrounding
these estimates and the potential impact on your financial statements. Accordingly, please
provide us the following information for each of your lines of business and tell us why you
have not provided these disclosures in your filing.

    •

    Tell us the reserves accrued as of the latest balance sheet date presented. The
total of these amounts should agree to the amount presented on the balance sheet.

    •

    Tell us the range of loss reserve estimates as determined by your actuaries.
Discuss the key assumptions used to arrive at management’s best estimate of loss
reserves within that range and what specific factors led management to believe this
amount rather than any other amount within the range represented the best estimate of
incurred losses.

    •

    Provide more precise insight into the existence and effects on future operations and
financial condition of known trends in claim frequency and severity. Link this
discussion to liquidity and capital resources.

    •

    For each of your longer-tail businesses, such as workers’ compensation, provide us
with more insight into the existence and effects on future operations and financial
condition of known trends, events and uncertainties. Information you should consider,
but not be limited to, include the following:

    a.

    the number of claims pending at each balance sheet date;

    b.

    the number of claims reported for each period presented;

    c.

    the number of claims dismissed, settled, or otherwise resolved
for each period;

    d.

    the nature of the claims including relevant characteristics of
the claimant population (e.g., involves a large number of relatively small
individual claims of a similar type);

    e.

    the total settlement amount for each period;

    f.

    the cost of administering the claims;

    g.

    emerging trends that may result in future reserve adjustments;
and

Securities and Exchange Commission

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August 5, 2005

if management is unable to estimate the possible loss or range of loss, a statement to that
effect.

     This response discusses your point that DGI’s MD&A does not appear to explain adequately DGI’s
process of making estimates of losses and loss expenses and why DGI has not included such
information in its historical filings with the Commission. Your comment requests specific data,
which is as follows:

     •       Gross reserves for losses and loss expenses were $267.2 million at December 31, 2004.
After deducting reinsurance recoverable of $95.8 million, net reserves for losses and loss expenses
were $171.4 million at December 31, 2004.

     •       Based upon information provided by DGI’s independent actuaries during the development
of DGI’s net reserves for losses and loss expenses for the year ended December 31, 2004, DGI
developed a range from a low of $125.1 million to a high of $215.6 million and with a most-likely
number of $171.4 million. For the year ended December 31, 2004, DGI used the most-likely number as
determined by its independent actuaries.

     •       Reserve estimates are based on management’s assessment of known facts and
circumstances, review of historical loss settlement patterns, estimates of trends in claims
severity, frequency, legal and regulatory changes and other factors. DGI records the actuarial
best estimate of the ultimate unpaid losses and loss expenses incurred. Actuarial loss reserving
techniques and assumptions, which rely on historical information as adjusted to reflect current
conditions, have been consistently applied, including consideration of recent case reserve
activity. The range of estimates of the ultimate net unpaid losses and loss settlement expenses
based upon information provided by DGI’s independent actuaries for commercial lines in 2004 was
$68.1 million to $115.2 million (DGI selected the actuaries’ most-likely number of $91.8 million)
and for personal lines in 2004 was $57.0 million to $100.4 million (DGI selected the actuaries’
most-likely number of $79.6 million).

     •       DGI’s reserve for unpaid losses and loss expenses is based on current trends in loss
and loss expense development and reflects DGI’s best estimate for future amounts needed to pay losses
and loss expenses with respect to incurred events currently known to DGI plus IBNR. DGI’s
liability for losses and loss expenses at December 31, 2004 represents the level cited as most
likely by DGI’s independent actuaries. Even so, the ultimate liability of DGI for losses and loss
expenses will likely differ from amounts recorded at December 31, 2004.

     •       DGI has evaluated the effect on its loss and loss expense reserves and stockholders’
equity in the event of reasonably likely changes in the variables considered in establishing loss
and loss expense reserves. The range of reasonably likely changes was

Securities and Exchange Commission

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August 5, 2005

established based on a review of changes in accident year development by line of business and
applied to loss reserves as a whole. The selected range does not necessarily indicate what could
be the potential best or worst case or likely scenario. The following table sets forth the effect
on DGI’s loss and loss expense reserves and stockholders’ equity in the event of reasonably likely
changes in the variables considered in establishing loss and loss expense reserves:

    Adjusted Loss and

    Adjusted Loss and

    Change in Loss

    Loss Expense

    Percentage Change

    Loss Expense

    Percentage Change

    and Loss Expense

    Reserves Net of

    in Equity as of

    Reserves Net of

    in Equity as of

    Reserves Net of

    Reinsurance as of

    December 31,

    Reinsurance as of

    December 31,

    Reinsurance

    December 31, 2004

    2004(1)

    December 31, 2003

    2003(1)

    (dollars in thousands)

    (10.0
    )%

    $
    154,288

    4.6
    %

    $
    125,006

    4.3
    %

    (7.5
    )

    158,574

    3.4

    128,479

    3.2

    (5.0
    )

    162,859

    2.3

    131,951

    2.2

    (2.5
    )

    167,145

    1.1

    135,424

    1.1

    Base

    171,431

    —

    138,896

    —

    2.5

    175,717

    -1.1

    142