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FREDERICK W. DREHER

DIRECT DIAL: 215.979.1234

PERSONAL FAX: 215.979.1213

E-MAIL: fwdreher@duanemorris.com

September 14, 2005

    Duane Morris

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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 set forth in your
August 26, 2005 letter to DGI, as supplemented by our telephone conversation on August 30, 2005.
One of our partners, Kathleen M. Shay, had previously advised you that DGI’s response would be
submitted by September 14, 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.

Exhibit 13 – Annual Report to Shareholders

General

    1.

    We noted that you included new disclosures in the Form 10-Q for the quarterly period ended
June 30, 2005 as described in your responses to certain comments, e.g. sensitivity of equity
to variability in loss and loss expense reserves and table of contractual obligations.
However, we were unable to locate the proposed disclosure discussed in your responses to other
comments,

    Duane Morris llp

    30 South 17th Street   PHILADELPHIA, PA 19103-4196

    PHONE: 215.979.1000   FAX: 215.979.1020

Securities and Exchange Commission

Page 2

September 14, 2005

    e.g. disclosure relating to loss and loss expense experience as described in your responses
to comments 3 and 4. Please provide examples in disclosure-type format for all proposed
disclosures described in your response letter and clarify in which filing you plan to make
these new disclosures.

     As noted in your comment, DGI expanded its disclosures relating to loss and loss expense
reserves in its Form 10-Q Report for the quarter ended June 30, 2005. For the proposed disclosures
relating to loss and loss expense experience described in DGI’s previous response that were not
included in the Form 10-Q Report for the quarter ended June 30, 2005, DGI intends to include such
disclosures in its annual reports on Form 10-K. DGI monitors its loss and loss expense experience
on a regular basis for any material changes in historical trends or reserve development patterns.
DGI’s business and loss experience has been relatively stable in the past, and DGI would provide
specific disclosure in its quarterly filings in the event of any material deviations from its most
recent annual report disclosure information. As a matter of achieving higher-quality disclosure to
investors, DGI intends to include disclosures regarding the range of estimates provided by DGI’s
actuaries, claim count information for longer-tail lines of business and loss and loss expense
reserve accident year developments in its future annual filings. Sample paragraphs making these
additional disclosures are as follows:

Sample Disclosure Regarding Range of Actuarial Estimates

     “Our reserve for unpaid losses and loss expenses is based on current trends in
loss and loss expense development and reflects our best estimate for future amounts
needed to pay losses and loss expenses with respect to incurred events currently known
to us plus IBNR. 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
assumptions. 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. For
the year ended December 31, XXXX, we used the most-likely number as determined by our
actuaries. Based upon information provided by our actuaries during the development of
our net reserves for losses and loss expenses for the year ended December 31, XXXX, we
developed a range from a low of $XXX million to a high of $XXX million and with a
most-likely number of $XXX million. The range of estimates for commercial lines in
XXXX was $XXX million to $XXX million (DGI selected the actuaries’ most-likely number
of $XXX million) and for personal lines in XXXX

Securities and Exchange Commission

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September 14, 2005

was $XXX million to $XXX million (DGI selected the actuaries’ most-likely number
of $XXX million).”

Sample Disclosure Regarding Claim Count Information for Longer-Tail Lines of Business

     “We have experienced adverse loss trends in our workers’ compensation line of
business in recent years. These trends are consistent with the experience of other
companies writing this coverage, many of which have made significant additions to
their reserves for insured events in prior years. As we continue to implement various
measures to improve our workers’ compensation loss experience, we are realizing
gradual improvement in our results in this line of business. The following table
presents XXXX and XXXX claim count and payment amount information for workers’
compensation. Workers’ compensation losses primarily consist of indemnity and medical
costs for injured workers. Substantially all of the claims are relatively small
individual claims of a similar type.

    For Year Ended

    December 31,

    XXXX

    XXXX

    (dollars in thousands)

    Workers’ compensation:

    Number of claims pending, beginning of period

    XXX

    XXX

    Number of claims reported

    XXX

    XXX

    Number of claims settled or dismissed

    XXX

    XXX

    Number of claims pending, end of period

    XXX

    XXX

    Losses paid

    $
    XXX

    $
    XXX

    Loss expenses paid

    XXX

    XXX
     ”

Sample Disclosure Regarding Loss and Loss Expense Reserve Development

     “We recognized an increase (decrease) in the liability for losses and loss
expenses of prior years of $XX million, $XX million and $XX million in XXXX, XXXX and
XXXX, respectively. We made no significant changes in our reserving philosophy, key
reserving assumptions or claims management in XXXX and XXXX, even though those years
reflected changes in reserve estimates. Changes in our estimate of the liability for
losses and loss expenses generally reflect actual payments and the evaluation of
information received since the prior reporting

Securities and Exchange Commission

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September 14, 2005

date. No significant offsetting changes in estimates that increased or decreased
the loss and loss expense reserves have occurred in these periods.

     “Excluding the impact of isolated catastrophic weather events, we have noted
slight downward trends in the number of claims incurred and the number of claims
outstanding at period ends relative to our premium base in recent years across most of
our lines of business. However, the amount of the average claim outstanding has
increased gradually over the past several years as the property/casualty insurance
industry has experienced increased litigation trends, periods in which economic
conditions extended the estimated length of disabilities, increased medical loss cost
trends and a general slowing of settlement rates in litigated claims.”

     The sample disclosure will also discuss any other factors that materially contributed to
favorable or unfavorable loss development during the specific accounting periods included in the
particular report.

Management’s Discussion and Analysis

Critical Accounting Policies and Estimates

Liability for Losses and Loss Expenses, page 10

    2.

    Please refer to prior comments 3 and 4. Your disclosure in the Form 10-Q for the quarter
ended June 30, 2005 does not appear to provide investors with an adequate understanding of the
uncertainties in applying the accounting policies related to your liability for losses and
loss expenses, the historical accuracy of these critical accounting estimates, the key
assumptions used in your sensitivity analysis that are reasonably likely to change, and the
expected likelihood of material changes in the future. Please provide this information to us
in a disclosure-type format or tell us why these disclosures are not necessary.

     Substantially the following narrative disclosure appeared in DGI’s Form 10-K Report for the
year ended December 31, 2004; we have modified it slightly in response to your comments:

     “Liabilities for losses and loss expenses are estimates at a given point in time
of what an insurer expects to pay to claimants, based on facts and circumstances then
known, and it can be expected that the insurer’s ultimate liability for losses and
loss expenses will exceed or be less than such estimates. Our estimates of
liabilities for losses and loss expenses are based on assumptions as to future loss
trends and expected claims severity, judicial theories of liability

Securities and Exchange Commission

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September 14, 2005

and other factors. However, during the loss adjustment period, we may learn
additional facts regarding individual claims, and consequently it often becomes
necessary to refine and adjust our estimates of our liability. We reflect any
adjustments to our liabilities for losses and loss expenses in our operating results
in the period in which the changes in estimates are made.

     “We maintain liabilities for the eventual payment of losses and loss expenses
with respect to both reported and unreported claims. Liabilities for loss expenses
are intended to cover the ultimate costs of settling all losses, including
investigation and litigation costs from such losses. We base the amount of 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. We determine the amount of our
liability for unreported claims and loss expenses on the basis of historical
information by line of insurance. We account for inflation in the reserving function
through analysis of costs and trends and reviews of historical reserving results. We
closely monitor our liabilities and recompute them periodically using new information
on reported claims and a variety of statistical techniques. Our liabilities for
losses are not discounted.

     “The establishment of appropriate liabilities is an inherently uncertain process,
and there can be no assurance that the ultimate liability will not exceed our loss and
loss expense reserves and have an adverse effect on our results of operations and
financial condition. As is the case for substantially all property and casualty
insurance companies, we have found it necessary in the past to increase our estimated
future liabilities for losses and loss expenses in certain periods, and in other
periods our estimates have exceeded our actual liabilities. We recognized an increase
(decrease) in our liability for losses and loss expenses of ($XXXX), $(XXXX) and $XXXX
in XXXX, XXXX and XXXX, respectively. Further adjustments could be required in the
future. However, on the basis of our internal procedures, which analyze, among other
things, our prior assumptions, our 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 adequate provision has been made for our liability for losses and loss expenses.”

Securities and Exchange Commission

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September 14, 2005

     As a matter of achieving higher-quality disclosure to investors, DGI will include the above
narrative discussion of its liability for losses and loss expenses in future quarterly filings
starting with its Form 10-Q Report for the quarter ending September 30, 2005.

Management’s Evaluation of Operating Results, page 11

    3.

    Please refer to prior comments 5 and 6. You state that Donegal [DGI] and the Mutual Company
target different markets, e.g. preferred versus standard tier products, with different pricing
and underwriting standards and that the pool is intended to spread the risk of loss from
operating in these different markets between the two companies. For 2004, this risk of loss
appeared to vary significantly between the two pool participants. We note that you ceded $63
million of premium to the pool and assumed $168 million of premium from the pool, which
appeared to increase income before income tax expense and extraordinary item by $46 million,
i.e. the margin of $66.3 million on assumed business less the margin of $20.3 million on ceded
business. Please provide to us in a disclosure-type format a discussion that quantifies more
explicitly the impact of this pooling arrangement on your operating results for each period
presented. Your proposed new disclosure should also discuss the close strategic and
operational integration of the Mutual Company and Donegal [DGI], the complementary nature of
their target markets and products and the differences between the risk profiles of these two
companies.

     We propose the following disclosure in response to your comments, and believe it addresses
your questions about the pooling arrangement more comprehensively than our prior response.

     “In the mid-1980’s, Donegal Mutual Insurance Company (the “Mutual Company”), like
a number of other mutual property and casualty insurance companies, recognized the
need to develop additional sources of capital and surplus to remain competitive, have
the capacity to expand its business and assure its long-term viability. The Mutual
Company, again like a number of other mutual property and casualty insurance
companies, determined to implement a downstream holding company structure as a
strategic response. Thus, in 1986, the Mutual Company formed DGI as a downstream
holding company, then wholly owned by the Mutual Company, and Atlantic States
Insurance Company (“Atlantic States”) as a wholly owned subsidiary of DGI. As part of
the implementation of this strategy, the Mutual Company and Atlantic States entered
into a pooling agreement in 1986 whereby each company contributed all of its direct
written business to the pool and the pool then allocated a portion of the pooled
business to each company. The portion of the pooled business allocated to each
company was commensurate with its capital

Securities and Exchange Commission

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September 14, 2005

and surplus and its capacity to obtain additional capital and surplus. The
consideration to the Mutual Company for entering into the pooling agreement was its
ownership of DGI capital stock and the expectation that the Mutual Company’s surplus
would increase over time as the value of its ownership interest in DGI increased.

     “Since 1986, DGI has effected three public offerings, a major purpose of which
was to provide capital for Atlantic States and DGI’s other insurance subsidiaries and
to fund acquisitions by DGI. As Atlantic States received additional capital, its
underwriting capacity significantly increased. Thus, as originally planned in the
mid-1980’s, Atlantic States had the capital necessary to support the growth of its
direct business and increases in the amount and percentage of business it assumes from
the pool. As a result, the participation of Atlantic States in the intercompany pool
has increased periodically from its initial 30% participation in