UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

SCHEDULE 14A

Proxy Statement Pursuant to Section 14(a) of the

Securities Exchange Act of 1934

(Amendment No.     )

Filed by the Registrantx                                       Filed by a Party other than the Registrant¨

Check the appropriate box:

Donegal Group Inc.

(Name of Registrant as Specified In Its Charter)

(Name of Person(s) Filing Proxy Statement, if other than the Registrant)

Payment of Filing Fee (Check the appropriate box):

NOTICE OF THE ANNUAL MEETING OF STOCKHOLDERS

WE WILL HOLD ON APRIL 19, 201217, 2014

To the Stockholders of

DONEGAL GROUP INC.:

We will hold our 20122014 annual meeting of stockholders (our “2014 Annual Meeting”) at 10:00 a.m., local time, on Thursday, April 19, 2012,17, 2014, at the Heritage Hotel Lancaster, 500 Centerville Road, Lancaster, Pennsylvania 17601. At our 2012 annual meeting of stockholders,2014 Annual Meeting, our stockholders will act on the following items of stockholder business:

Our advance notice by-laws we have had in effect for many years require that our stockholders to submit to us in a timely manner specificnot later than 120 days prior to our next forthcoming annual meeting of stockholders detailed information regarding any nomination by a stockholder nomination of a candidate for election as a director or any proposal by a stockholder of any other proposed item of stockholder business. business a stockholder wishes our stockholders to consider at our next forthcoming annual meeting of stockholders. That date was November 18, 2013 with respect to our 2014 Annual Meeting and is November 17, 2014 with respect to our 2015 annual meeting of stockholders.

Therefore, under applicable law:law and our by-laws, at our 2014 Annual Meeting:

Our board of directors has established the close of business on March 2, 20127, 2014 as the record date for the determination of the holders of our Class A common stock and for the determination of the holders of our Class B common stock entitled to notice of, and to vote at, our 2012 annual meeting2014 Annual Meeting. Our certificate of stockholders.incorporation does not authorize cumulative voting in the election of our directors.

We include our 20112013 annual report to stockholders with this notice of our 2014 Annual Meeting and our proxy statement relating to our 2012 annual meeting of stockholders with this notice of our 2012 annual meeting of stockholders.2014 Annual Meeting. We also enclose a proxy card for you to sign, date and return in the accompanying postage-prepaid envelope.envelope that you may use to vote by proxy at our 2014 Annual Meeting.

Please return your completed and duly signed proxy card, whether or not you expect to attend our 2012 annual meeting of stockholders2014 Annual Meeting in person, by mail, or vote by telephone or via the internetInternet as we describe on the accompanying proxy card.

By order of our board of directors,

Donald H. Nikolaus,

PresidentChairman and Chief Executive Officer

March 19, 201217, 2014

Marietta, Pennsylvania

Important Notice Regarding the Availability of theOur Proxy Materials for

Our 2014 Annual Meeting of

Stockholders To Be HeldWe Will Hold on April 19, 201217, 2014

We enclose a printed copy of the proxy statement for our 2012 annual meeting of stockholders2014 Annual Meeting and our 20112013 annual report to stockholders with this notice of annual meeting.our 2014 Annual Meeting. You may also view each of these documents on the internetInternet atwww.proxyvote.com.www.proxyvote.com. No information on theour website other than the proxy statement for our 2012 annual meeting of stockholders2014 Annual Meeting and our 20112013 annual report to stockholders constitutes a part of theour proxy solicitation materials for our 2012 annual meeting of stockholders2014 Annual Meeting or part of our 20112013 annual report to our stockholders.

DONEGAL GROUP INC.

PROXY STATEMENT

Introduction

This proxy statement contains information relating to our 2012 annual meeting of stockholders.2014 Annual Meeting. We will hold our 2012 annual meeting of stockholders2014 Annual Meeting on Thursday, April 19, 2012,17, 2014, at 10:00 a.m., local time, at the Heritage Hotel Lancaster, 500 Centerville Road, Lancaster, Pennsylvania 17601.

On March 19, 2012,17, 2014, we mailed to our stockholders of record at the close of business on March 2, 20127, 2014 this proxy statement, thean accompanying form of proxy card and return envelope as well as our 20112013 annual report to stockholders. Thestockholders (our “2013 Annual Report”). Our mailing also included a postage-prepaid envelope for your convenience in returning your duly executed proxy card to us,our transfer agent, unless you prefer to vote in person, by telephone or via the internet.Internet. We ask stockholders to return their completed proxy cards to us whether or not they expect to attend our 2014 Annual Meeting in person.

We will bear all ofpay the costs of preparing and mailing our proxy materials to our stockholders for our 2012 annual meeting of stockholders2014 Annual Meeting and making those materials available for our stockholders to view on the internet.Internet. We will, upon request, reimburse brokers, nominees, fiduciaries, custodians and other record holders for their reasonable expenses in forwarding our proxy solicitation materials for our 2012 annual meeting of stockholders2014 Annual Meeting to the beneficial owners of our Class A common stock and to the beneficial owners of our Class B common stock for whom such persons serve as record holders. We may also solicit proxies from some stockholders in person, by mail, e-mail, telephone or other means of communication through our directors, officers and regular employees whom we do not employ specifically for proxy solicitation purposes and none of whom will receive any additional compensation for performing such services.

Highlights of Our 2013 Performance

For 2013, our total revenues, net income and net income per diluted Class A share increased 6.2%, 14.0% and 12.1%, respectively, compared to 2012. The following table depicts our total revenues, net income and net income per diluted Class A share for the years ended December 31, 2013, 2012 and 2011. For further information, we refer you to the financial statements included in our 2013 Annual Report, which we have mailed to you simultaneously with the mailing of this proxy statement.

We use the following defined terms relating to us, our subsidiaries and our affiliates in this proxy statement:

(i)

i(ii)

CONTENTS

ii(iii)

(iv)

Unless we otherwise expressly indicate, all of the financial information we include or incorporate by reference in this proxy statement for our 2012 annual meeting of stockholders2014 Annual Meeting relates to our 20112013 fiscal year. Our 20112013 fiscal year began on January 1, 20112013 and ended on December 31, 2011.2013.

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OUR 20122014 ANNUAL MEETING OF STOCKHOLDERS

OurIn accordance with this proxy statement, our board of directors solicits proxies through this proxy statement from our stockholders for use in connection with our 2012 annual meeting of stockholders2014 Annual Meeting and any adjournment or postponement of that annual meeting.our 2014 Annual Meeting. We will hold our 2012 annual meeting of stockholders2014 Annual Meeting at 10:00 a.m., local time, on April 17, 2014 at the Heritage Hotel Lancaster, 500 Centerville Road, Lancaster, Pennsylvania 17601 at 10:00 a.m., local time, on April 19, 2012.17601.

What is the agenda for our 2012 annual meeting of stockholders?2014 Annual Meeting?

At our 2012 annual meeting of stockholders,2014 Annual Meeting, our stockholders will consider and act upon:upon the following four items of stockholder business:

What is the effect of our advance notice by-laws?

As is the case with many publicly-owned companies, we have had “advance notice” by-laws in effect for many years. Our advance noticeby-laws require that a stockholder provide us with a specified period of prior notice of that stockholder’s intention to nominate aany candidate for election as a Class A director at our 2012 annual meeting of stockholders2014 Annual Meeting or to propose any other item of stockholder business for stockholder actionconsideration at our 20122014 Annual Meeting.

Under our advance notice by-laws, we annually establish a date. The date in general is 120 days prior to the mailing date of our proxy solicitation for our prior year’s annual meeting of stockholders, after which date a stockholder may no longer propose any candidate for election as a director at our next forthcoming annual meeting of stockholders and may no longer propose any other item of stockholder business for consideration and a vote by our stockholders at that year’s annual meeting of stockholders. For our 2014 Annual Meeting, that date was November 18, 2013. For our 2015 annual meeting of stockholders, that date is November 17, 2014. The purpose of our advance notice by-laws is to ensure that we can include in thisour annual proxy statement,statements, for the information of all of our stockholders, all of the actions we or others propose to present for stockholder consideration by our stockholders at each of our 2012 annual meetingmeetings of stockholders.

No stockholder has nominated a candidate for election as a Class BA director at our 2012 annual meeting of stockholders2014 Annual Meeting or validly proposed the transaction of any other item of stockholder business at our 2012 annual meeting2014 Annual Meeting with the exception of stockholders within the time limits our advance notice by-laws specify.stockholder proposal we describe elsewhere in this proxy statement. Accordingly, no item of stockholder business, other than the twothree items of stockholder business we describe in our notice of our 2012 annual meeting of stockholders2014 Annual Meeting, as well as in this proxy statement, and the stockholder proposal, may properly come before our 2012 annual meeting2014 Annual Meeting or any adjournment or postponement of stockholders. Further,our 2014 Annual Meeting. As a result, we will not submit any other item of stockholder business, other than procedural matters related to the conduct of our 2012 annual meeting of stockholders,2014 Annual Meeting, to a vote of our stockholders at our 2012 annual meeting of stockholders.2014 Annual Meeting.

We are a Delaware corporation. Therefore, the Delaware General Corporation Law, or the DGCL, our amended and restated certificate of incorporation and our by-laws as currently in effect govern the conduct of business at our 2012 annual meetingmeetings of stockholders, our relationships with our stockholders and the relative rights, powers, duties and obligations of us and our stockholders, directors, nominees for directors, officers and employees. The effect of these provisions is to provide Donald H. Nikolaus, as the person our board of directors named to preside at our 2012 annual meeting of stockholders and who is our president and chief executive officer, with broad discretion in conducting our 2012 annual meeting of stockholders.

What will constitute ais the quorum requirement for the conduct of business at our 2012 annual meeting of stockholders?2014 Annual Meeting?

Our by-laws provide that the presence, in person or by proxy, of not less than a majority of the aggregate voting power of our outstanding shares of Class A common stock and our outstanding shares of Class B common stock as of the record date will constitutefor our 2014 Annual Meeting constitutes a quorum at our 2012 annual meeting of stockholders.2014 Annual Meeting. Because Donegal Mutual ownedowns approximately 66%65% of the aggregate voting power of our outstanding Class A common stock and our outstanding Class B common stock outstanding on the record date and because Donegal Mutual will vote all of itsthe shares of our Class A common stock and all of the shares of our Class B common stock Donegal Mutual owns will be present in person at our 2012 annual meeting of stockholders,2014 Annual Meeting, the presence in person of the shares Donegal Mutual owns at our 2012 annual meeting of stockholders2014 Annual Meeting will ensureconstitute the presence of a quorum at our 2012 annual meeting of stockholders. As2014 Annual Meeting. Because a result,quorum will be present at our 2014 Annual Meeting, our stockholders will be lawfully ablehave the legal power and authority to conduct the items of stockholder business at our 2012 annual meeting of stockholders2014 Annual Meeting that we describe in theour notice of our 2012 annual meeting of stockholders.2014 Annual Meeting and in this proxy statement.

What willis the order of business be at our 2012 annual meeting of stockholders?2014 Annual Meeting?

Our by-laws and applicable provisions of the DGCL govern the organization, and conduct of business at and the adjournment of our 2012 annual meeting of stockholders.2014 Annual Meeting. Our board of directors namedhas designated Donald H. Nikolaus, our presidentChairman and chief executive officer,Chief Executive Officer, as the chairpresiding officer of our 2012 annual meeting of stockholders. Applicable law limits the items of business we will conduct at our 2012 annual meeting of stockholders to the items of business we list in our notice of our 2012 annual meeting of stockholders.2014 Annual Meeting. Mr. Nikolaus will call our 2012 annual meeting of stockholders2014 Annual Meeting to order and will conduct the transactionbusiness of our 2014 Annual Meeting, including voting upon the four items of stockholder business upon which our stockholders will vote at our 2014 Annual Meeting. No other item of stockholder business may properly come before our 2014 Annual Meeting. Mr. Nikolaus, as the presiding officer of our 2014 Annual Meeting, will determine, in his discretion, the order of the items of stockholder business we list in our notice of annual meeting at our 2012 annual meeting of stockholders. Mr. Nikolaus will determine, as chair of our 2012 annual meeting of stockholders, in his broad discretion, the order of the business our stockholders will conduct at our 2012 annual meeting of stockholders2014 Annual Meeting and the procedural manner in which we will conduct the business of our 2012 annual meeting of stockholders.2014 Annual Meeting.

We have historically conducted the voting on the proposalsitems of stockholder business we submit for a stockholder actionvote at our annual meetings of stockholders as the first itemsitem of business.business following the calling of our 2014 Annual Meeting to order and the determination of a quorum by the presiding officer of our Annual Meeting. We currently intend to follow the samea substantially similar procedure at our 2012 annual meeting2014 Annual Meeting. After our stockholders have voted on the four items of stockholders.stockholder business we describe in this proxy statement, and the judges of election our board of directors has appointed have tallied the voting on those four items of stockholder business, Mr. Nikolaus our president and chief executive officer, will then discuss our results of operations for 20112013 compared to 2012 and our outlook for 2012.2014. After Mr. Nikolaus completes his remarks, hethe judges of election will entertainannounce the results of the voting on the four items of stockholder business. Then Mr. Nikolaus, in his capacity as the presiding officer of our 2014 Annual Meeting, will recognize stockholders who wish to ask pertinent questions andor make comments from stockholders as Mr. Nikolaus, in his discretion, deems appropriate.appropriate under then prevailing circumstances.

Who may attendis entitled to notice of, and who may vote at, our 2012 annual meeting of stockholders?2014 Annual Meeting?

Our board of directors established the close of business on March 2, 20127, 2014 as the record date for the determination of the holders of our Class A common stock and the holders of our Class B common stock who are entitled to notice of, and to vote at, our 2012 annual meeting of stockholders.2014 Annual Meeting. We refer to those eligible stockholders as “stockholders of record” in this proxy statement. Stockholders of record, including persons whom a stockholder of record duly and validly appoints as proxies,the proxy of such stockholder of record, may attend, and vote at, our 2012 annual meeting2014 Annual Meeting.

Each share of stockholders.our Class A common stock held of record for our 2014 Annual Meeting is entitled to cast one-tenth of a vote per Class A share for each nominee for election as a Class A director at our 2014 Annual Meeting and each of the other items of stockholder business we submit to a vote of our stockholders at our 2014 Annual Meeting.

Each share of our Class B common stock held of record for our 2014 Annual Meeting is entitled to cast one vote per Class B share for each nominee for election as a Class A director at our 2014 Annual Meeting and each of the other items of stockholder business we submit to a vote of our stockholders at our 2014 Annual Meeting.

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We reserve the right to request photographic identification, such as a currently valid driver’s license, before we permit a stockholder of record, or a proxy for a stockholder of record, to attend our 2012 annual meeting of stockholders.2014 Annual Meeting. Even if you currently plan to attend our 2012 annual meeting of stockholders2014 Annual Meeting and vote in person, we recommend that you submit yourvote by proxy using one of the methods we describe belowin this proxy statement under “How do you vote theyour DGI shares registered in your name?” By doing so,voting in one of those ways, we can then includerecognize your votevotes even if you later find you are unable to attend, or you do not, to attendor cannot for any reason, attend our 2012 annual meeting2014 Annual Meeting and vote in person.

Our independent transfer agent, Computershare Trust Company, N.A. (“Computershare”), has prepared and certified a list of stockholders.

Youall holders of our Class A common stock and all holders of our Class B common stock outstanding as of the close of business on March 7, 2014, the record date for our 2014 Annual Meeting. If your name appears on that certified list of stockholders Computershare prepared for our use in connection with our 2014 Annual Meeting, you are a stockholder of record if your name appears on the list ofentitled to vote in person or by proxy at our stockholders as of the record date that our independent transfer agent prepares in connection with our 2012 annual meeting of stockholders.2014 Annual Meeting. For example, you are a stockholder of record if you received this proxy statement and the proxyrelated materials for our 2012 annual meeting of stockholders2014 Annual Meeting directly from us through our transfer agent and not indirectly from aanother person who is the record holder of the shares you own beneficially, own, such as a bank, or a brokerage firm. Duringfirm or other fiduciary or representative.

Our by-laws, in accordance with the DGCL, provide a stockholder of record an opportunity, subject to that stockholder of record’s prior compliance with certain conditions we describe in this proxy statement, during the ten calendar days that precedepreceding the date of our 2012 annual meeting of stockholders, you may, upon written request2014 Annual Meeting, to our chief financial officer that we determine, in our sole discretion, is proper and legally relevant to our 2012 annual meeting of stockholders, inspect during normal business hoursexamine, at our principal executive offices in Marietta, Pennsylvania, an alphabetical list of the holders of record for our 2014 Annual Meeting of our Class A common stock and an alphabetical list of the holders of record for our 2014 Annual Meeting of our Class B common stock. We will grant a stockholder of record’s request to make such an examination if:

If a stockholder of record does not make such a written request to inspect our list of stockholders within the ten-day period we describe above or if we make a determination, in our discretion, that the stockholder of record’s request for inspection of our list of stockholders is not proper or not legally relevant to the items of stockholder business we will conduct at our 2014 Annual Meeting, we will not permit that stockholder of record to examine the list of the record holders of our Class A common stock and the record holders of our Class B common stock.

If you are the beneficial owner of shares of our Class A common stock or the beneficial owner of shares of our Class B common stock registered in the name of a bank, broker or broker holds yourother fiduciary or representative, also known as shares held in “street name,” we consider you the beneficial owner of the shares your bank, broker or brokerother fiduciary or representative holds for you, and we consider your bank, your broker or brokeryour other fiduciary or representative the stockholder of record of your shares. Your bank, your broker or brokeryour other fiduciary or representative will send you separately, as the beneficial owner, information describing the procedure for votingyou to vote your shares. You should follow the instructions your bank, your broker or brokeryour other fiduciary or representative provides to you on how to vote your shares.

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Which of the items of stockholder business we will conduct at our 2014 Annual Meeting do we consider routine and which do we consider non-routine?

We will transact four items of stockholder business at our 2014 Annual Meeting. We consider these items routine or non-routine as indicated in the table below:

Under applicable rules, a broker or other non-beneficial record owner may not vote on non-routine matters without voting instructions from the beneficial owner.

What percentage of the aggregate voting power of our outstanding shares of Class A common stock and our outstanding shares of Class B common stock is requirednecessary to approve the items of stockholder business on which our stockholders will consider and vote at our 2012 annual meeting of stockholders?2014 Annual Meeting?

Election of Class B Directors.A Directors

The four nominees our board of directors nominated for election as Class BA directors are the only nominees eligible for election as Class BA directors at our 2012 annual meeting of

stockholders2014 Annual Meeting and any adjournment or postponement of our 2012 annual meeting2014 Annual Meeting. Our certificate of stockholders.incorporation and our by-laws do not authorize cumulative voting in the election of our directors. As the DGCL permits and our by-laws provide, we utilize a plurality of the votes cast standard, and not a majority of the outstanding votes cast standard, in the election of directors. Our certificate of incorporation provides that our shares of Class A common stock and our shares of Class B common stock vote together as a single class in the election of our directors. At our 2012 annual meeting of2014 Annual Meeting, our stockholders will elect as Class A directors the four candidatesnominees for election as Class BA directors who receive the highest number of stockholder votes at our 2014 Annual Meeting. The four persons elected as Class A directors will be elected and will become Class B directorsserve for a term of three years and until their respective successors take office.

If you properly submit your proxy and markWithhold Authority, for the election of some or all of the nominees for election as Class A directors, the proxies we have named will not vote your shares with respect to the nominee or nominees for election as Class A director as to whom you have withheld authority. We will count the shares for which you so indicate, but we will count your shareshave withheld authority to vote for the election of directors as present at our 2012 annual meeting2014 Annual Meeting for the purposes of stockholders in determining whether a quorum exists.

Our certificateis present at our 2014 Annual Meeting. Because Donegal Mutual will vote all of incorporation and by-laws do not authorize cumulative voting inits shares for the election of the nominees for Class A director we name in this proxy statement, those nominees will be elected to serve as Class A directors for a term of three years and until their successors take office even if all of our directors.stockholders other than Donegal Mutual vote against the election of those nominees or elect to withhold authority from the proxies to vote on the election of those nominees.

Approval of the Compensation of Our Named Executive Officers

We are asking our stockholders to approve the compensation of our named executive officers by a non-binding advisory vote. Our Board of Directors recommends that you vote FOR this proposal because our board of directors believes our compensation policies and practices are effective in:

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We describe our compensation policies and practices beginning on page 22 of this proxy statement.

Our core management compensation program consists of a base salary payable in cash in bi-weekly installments, customary medical insurance benefits, an annual bonus payable in cash computed based upon a formula relating to our underwriting profitability during our most recently ended fiscal year and annual stock option grants which become exercisable at the closing market price of DGICA on the day before the date of grant, with one-third of the options vesting each year on a cumulative basis over a three-year period, except that vesting may accelerate in the event of death, disability, retirement or a change in control. We do not provide any retirement benefits because we match certain contributions annually to the 401(k) plans of our executive officers, including our named executive officers.

The compensation of our named executive officers emphasizes at-risk, performance-based compensation. We have designed fixed compensation elements, such as annual salary and certain insurance benefits, to be market-competitive for purposes of retention. However, we allocated a significant portion of the compensation of our named executive officers to compensation plans that promote and reward performance by them that generates long-term stockholder value.

Our board of directors believes our compensation strategy is successful, is a valuable part of our overall operations and contributes to our continuing success. Our board of directors recommends that stockholders voteFOR the proposal to approve the compensation of our named executive officers at our 2014 Annual Meeting on an advisory basis that does not bind our board of directors.

Because Donegal Mutual will vote all of its DGI shares for the approval of the compensation of our named executive officers, the compensation of our named executive officers will be approved by our stockholders even if all of our stockholders other than Donegal Mutual vote against approval of the compensation of our named executive officers.

For further information on the compensation of our named executive officers, we refer you to “Executive Compensation Discussion and Analysis” beginning on page 22 of this proxy statement.

Ratification of the Appointment of KPMG LLP to Serve as Our Auditors for 2014.    

Ratification of the appointment of KPMG LLP by theour audit committee of our board of directors of KPMG LLPto serve as our independent registered public accounting firm for 2012our fiscal year ending December 31, 2014 requires the affirmative vote of a majority of the aggregate voting power of our outstanding shares of Class A common stock and our outstanding shares of Class B common stock, voting together as of the record datea single class, present in person or by proxy and entitled to vote at our 2012 annual meeting2014 Annual Meeting. Because Donegal Mutual will vote all of stockholders.its DGI shares for ratification of the appointment by our audit committee of KPMG LLP as our independent registered public accounting firm for 2014, the ratification of the appointment of KPMG LLP by our audit committee will be approved even if all of our stockholders other than Donegal Mutual vote against the ratification of the appointment of KPMG LLP.

Stockholder Proposal

AlthoughOur stockholders will consider and vote upon a stockholder proposal at our 2014 Annual Meeting, assuming that the proponent of that stockholder proposal or his duly qualified representative properly presents it at our 2014 Annual Meeting.

Our board of directors recommends that you voteAGAINST approval of the stockholder proposal for the reasons we state in “Stockholder Proposal – DGI’s Statement in Opposition to the Stockholder Proposal” beginning on page 48 of this proxy statement.

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Quorum and Broker Non-Votes

In connection with our 2014 Annual Meeting, we will considertreat abstentions and broker non-votes as outstanding shares entitled to vote at our 2012 annual meeting2014 Annual Meeting. The holders present in person or by proxy of stockholders and count those shares in determininga majority of the numberaggregate voting power of votes necessary to constitute a quorum at our 2012 annual meeting of stockholders, a quorum will be present at our 2012 annual meeting of stockholders, because the presence at our 2012 annual meeting of stockholders of theoutstanding shares of our Class A common stock and the outstanding shares of our Class B common stock entitled to vote at our 2014 Annual Meeting will constitute a quorum at our 2014 Annual Meeting. Thus, a quorum will be present at our 2014 Annual Meeting because of the presence at our 2014 Annual Meeting of Donegal Mutual and because Donegal Mutual owns and will ensure the presenceexercise its majority voting power of a quorum. all of our outstanding shares of our Class A common stock and our outstanding shares of our Class B common stock it owns.

Broker non-votes are shares brokers or nominees hold of record in their name for which we haveand that such broker or nominee has not voted because the broker or nominee has not received voting instructions from the beneficial owner of or person otherwise entitled to vote, those shares and as to which shares the broker or nominee does not have discretionary voting power. Broker non-votes, if any, will not affect the presence of a quorum at our 2014 Annual Meeting other than being treated as votes present or affect the outcome of any matter we submit to a vote of our stockholders at our 2014 Annual Meeting.

What are the voting rights ofdo our stockholders?stockholders have?

At March 2, 2012,7, 2014, we had outstanding:

In summary:

Therefore, the holdersrecord of all of our outstanding shares of Class A common stock mayhave the right to cast a total of 1,999,8592,087,023 votes on each matter we submit to a vote of our stockholders at our 2012 annual meeting2014 Annual Meeting;

At the close of business on March 2, 2012,7, 2014, Donegal Mutual owned of record and beneficially 7,755,953 shares, or 38.8%37.2%, of our outstanding Class A common stock, and 4,199,2394,235,539 shares, or 75.3%75.9%, of our outstanding Class B common stock. Donegal Mutual therefore has the right to cast approximately two-thirds of the total number of votes that all of our stockholders may be cast at our 2012 annual meeting of stockholders2014 Annual Meeting on all matterseach matter we submit forto a vote of our stockholders at our 2012 annual meeting of stockholders.2014 Annual Meeting.

Donegal Mutual has advised us that it will vote all of its shares of our Class A common stock and all of its shares of our Class B common stock at our 2014 Annual Meeting as follows:

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As a result, based on the information Donegal Mutual furnished to us as to how Donegal Mutual will cast its votes at our 2014 Annual Meeting, we anticipate our stockholders will, at our 2014 Annual Meeting:

Therefore, based on the votes Donegal Mutual will cast at our 2012 annual meeting of stockholders, our stockholders will:

How do you vote the DGI shares you own that are registered in your name?

If the certified list of the holders of our Class A common stock and the holders of our Class B common stock as of the record date that our independent transfer agent prepared includes your name, you are a stockholder of record and you may attend our 2012 annual meeting of stockholders2014 Annual Meeting and vote in person or by proxy.proxy on the items of stockholder business we submit to a vote of our stockholders at our 2014 Annual Meeting. If you prefer, you may vote your proxy by telephone or via the Internet by following the instructions we include on the proxy card we sent to you along with this proxy statement and our 2013 Annual Report. The proxies our board of directors has appointed will vote your shares as you direct on any proxy card you return by mail. If you prefer, you may vote your proxymail, by telephone or via the internet by following the instructions we include on the proxy card we sent to you.Internet. The deadline for stockholders of record to vote at our 2014 Annual Meeting by telephone or via the internetInternet is 11:59 p.m., local time, on April 18, 2012. We must receive16, 2014. The deadline for our receipt of proxies submitted by mail or by express delivery services byfor voting at our 2014 Annual Meeting is 3:00 p.m., local time, on April 18, 2012.16, 2014.

You may vote by proxy by using one of the following three following methods:

Vote by telephone —– use any touch-tone telephone to vote your proxy 24 hours a day, 7 days a week. Have your proxy card available when you call. When requested, enter the control numbers listed on your proxy card lists and then follow the prompts. The telephone number is 1-800-690-6903.

Vote by mail —– mark, sign and date the proxy card we have mailed to you and return it to our independent transfer agent in the postage-prepaid envelope we have provided.mailed to you along with our proxy solicitation materials for our 2014 Annual Meeting and our 2013 Annual Report.

Vote via the internetInternet —– use the internetInternet to vote your proxy 24 hours a day, 7 days a week. Have your proxy card available when you access the website. When requested, enter the control numbers listed on your proxy card lists and then create and submit your ballot over the internet.Internet. The website address for voting via the internetInternet iswww.proxyvote.com.

If a broker, bank or other nomineefiduciary or representative is the holder of record of your shares, see “How do you vote theyour DGI shares you holdregistered in street name?” below.

How do you vote the DGI shares you holdown that are registered in street name?

If you are not a stockholder of record, but you are a “beneficial owner” of our Class A common stock or our Class B common stock at the close of business on March 2, 2012,7, 2014, which means that if the list of our stockholders of record at the close of business on March 2, 20127, 2014 prepared by our independent transfer agent prepared does not include your name orbut instead the name of the designee you have selected,bank, broker or other fiduciary or representative who is the holder of

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record of your shares, you must either direct the holder of record of your shares to vote your shares on your behalf on the mattersitems of stockholder business upon which our stockholders will consider and vote upon at our 2012 annual meeting of stockholders2014 Annual Meeting or you must obtain a form of proxy from your holder of record that you may then vote as if you were athe holder of record. Your broker does not have the discretion to vote your shares on non-routine matters, includingwhich includes the election of directors.

How do you vote the DGI shares you hold in your 401(k) plan?

If you participate in Donegal Mutual’s 401(k) plan, you may vote the shares ofour Class A common stockdirectors, the approval of the compensation of our named executive officers and Class B common stock credited to your 401(k) plan account at the close of business on March 2, 2012 by telephone, by mail or via the internet. Please see “How do you vote the DGI shares registeredstockholder proposal we describe elsewhere in your name?” for instructions as to how to vote the shares you hold in your 401(k) plan.this proxy statement.

How does our board of directors recommend our stockholders vote at our 2012 annual meeting of stockholders?2014 Annual Meeting?

Our board of directors unanimously recommends that youeach of our stockholders complete such stockholder’s proxy and vote as follows:

Unless you mark your proxy card to the contrary, the proxies our board of directors has appointed will vote your shares represented by a duly completed proxy for the election of the four nominees for Class BA directors we name in this proxy statement, andfor the approval of the compensation of our named executive officers, for the ratification of the appointment of KPMG LLP by our audit committee to serve as our independent registered public accounting firm for our fiscal year ending December 31, 2012.2014, and against approval of the stockholder proposal we include in this proxy statement.

May you change your vote after you have voted by proxy but before the vote of your proxy at our 2012 annual meeting of stockholders?2014 Annual Meeting?

You may revoke your proxy at any time prior to the time during our 2012 annual meeting of stockholders when the proxies castour board of directors appointed have completed their votes.collection of ballots during our 2014 Annual Meeting. If you are a stockholder of record, you may revoke your proxy by:by timely:

However, if you attend our 2012 annual meeting of stockholders2014 Annual Meeting in person and do not submit a ballot at our 2014 Annual Meeting, our proxies will vote the proxy you most recently submitted to them in accordance with the instructions you provided on yourthat most recent proxy.

If a bank, broker, nominee, other fiduciary or representative or other person is the holder of record of the shares you own, you shouldwill need to follow the instructions of the bank, broker, nominee, other fiduciary or representative or other holder of record as to how you may revoke your proxy.

If you have any questions about our 2012 annual meeting of stockholders2014 Annual Meeting or voting your shares, please call Jeffrey D. Miller, our senior vice presidentSenior Vice President and chief financial officer,Chief Financial Officer, at1-800-877-0600 or e-mail Mr. Miller atjeffmiller@donegalgroup.com.

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CERTAIN BENEFICIAL OWNERS OF OUR CLASS A COMMON STOCK OWNERSHIP

AND OUR CLASS B COMMON STOCK

Our Principal StockholdersBeneficial Owners of 5% or More of DGICA or DGICB

The table below lists each person whom we believe beneficially owned 5% or more of the outstanding shares of our Class A common stock (Nasdaq symbol DGICA) or 5% or more of the outstanding shares of our Class B common stock at(Nasdaq symbol DGICB), in each case, as of the close of business on March 2, 2012.7, 2014.

(2)	Dimensional Fund Advisors LP reported the ownership information shown in the above table in a Schedule 13G/A it filed with the SEC on February 14, 2012.10, 2014. Dimensional Fund Advisors LP disclaims beneficial ownership of these shares.

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The Ownership by Our Directors and Executive Officers of Our Stock

The following table shows the amount and the percentage of the outstanding shares of our outstanding Class A common stock and the amount and the percentage of the outstanding shares of our outstanding Class B common stock that each of our directors, andeach of our nominees for director, each of our named executive officers and all of our executive officers, our nominees for director and our directors as a group owned beneficially at the close of business on March 2, 2012.7, 2014. The total shares shown for each person includes shares the person owned jointly, in whole or in part, with the person’s spouse, or owned individually by the person’s spouse and shares purchasable upon the exercise of stock options that are currentlywere exercisable as of March 7, 2014 or arethat become exercisable within 60 days ofafter March 2, 2012.7, 2014. Ownership is less than 1% unless otherwise indicated. The business address of each of our officers and directors is c/o Donegal Group Inc., 1195 River Road, Marietta, Pennsylvania 17547.the table indicates otherwise.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, or the Exchange Act, requires that each of our executive officers,directors, each of our directorsexecutive officers and each holder ofany person who owns 10% or more of the outstanding shares of our Class A common stock or 10% or more of the outstanding shares of our Class B common stock, report such person’sfile with the SEC initial reports of their ownership of 10% or more of our Class A common stock and our Class B common stock to the SEC.as well as reports of subsequent changes in that ownership. Such persons must also mustfurnish us with copies

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of all forms they file statements of changes in such ownership with the SEC within two days ofpursuant to Section 16(a). As a change in such person’s ownership ofpractical matter, we seek to assist our Class A common stock or our Class B common stock. Our executive officers and directors have advised us in writing that each of them made all of his or her requiredcompleting these filings on a timely basis during 2011.

We have reviewed, withBased solely upon our review of the assistance of Duane Morris LLP,Section 16(a) filings our outside counsel, Mr. Shepard’s Form 3executive officers and Form 4 filingsdirectors made with the SEC during 2011. We2013 and written representations we receive annually from our directors and executive officers, we believe based upon the written advice of Duane Morris LLP, that Mr. Shepard filed his initial report on Form 3 approximately 13 months after he became a 10% beneficial ownerduring 2013 all of our Class A common stock. We further believe, based upon the written advice of Duane Morris LLP, that Mr. Shepard did not reportdirectors and executive officers filed all required Section 16(a) reports on a timely basis pursuant to Section 16(a) of the Exchange Act 146 separate transactions during 2010 and 2011 in which Mr. Shepard purchased shares of our Class A common stock or shares of our Class B common stock. Finally, Mr. Shepard did not file a Form 5 with respect to his purchases of our shares of Class A common stock and Class B common stock by the requisite filing date of February 14, 2012. We note, for the record, that the files available for public inspection at the SEC indicate that Mr. Shepard has subsequently reported his ownership and purchases of shares of our Class A common stock and our Class B common stock we list above.basis.

THE RELATIONSHIP OF DONEGAL MUTUAL AND DGI

Introduction

A group of local residents and business owners in Lancaster County, Pennsylvania formed Donegal Mutual in 1889 to provide property and casualty insurance. Now, 123125 years later, Donegal Mutual has succeeded and grown to have approximately $334.0$383.8 million in total assets and surplus of approximately $176.0 million.$204.4 million at December 31, 2013. In addition, Donegal Mutual has a two-thirds ownership interest inowns 37.2% of the outstanding shares of our Class A common stock and 75.9% of the outstanding shares of our Class B common stock. DGI, which, at December 31, 2011,2013, had total assets of approximately $1.3$1.4 billion and stockholders’ equity of approximately $383.0$400.0 million.

Donegal Mutual and we nowDGI’s insurance subsidiaries conduct business together as the Donegal Insurance Group in 22 Mid-Atlantic, Midwestern, New England and Southern states. An important partDuring 2013, A.M. Best Company reported that the Donegal Insurance Group ranked as the 95th largest property and casualty insurance group in the United States based on its 2012 net premiums written. A.M. Best Company has assigned the Donegal Insurance Group an A.M. Best rating of A (Excellent).

The Development of DGI

In the mid-1980s, Donegal Mutual recognized the desirability, as a mutual insurance company, of developing additional sources of capital and surplus so it could remain competitive and have the surplus to expand its business and ensure its long-term viability. Donegal Mutual determined to implement a downstream holding company structure as one of its business strategies. Accordingly, in 1986, Donegal Mutual formed us as a downstream holding company. Initially, Donegal Mutual owned all of our outstanding common stock. After Donegal Mutual formed us, we in turn formed Atlantic States as our wholly owned property and casualty insurance company subsidiary.

In connection with the establishment of Atlantic States and our downstream insurance holding company system, Donegal Mutual and DGI entered into a proportional reinsurance agreement, or pooling agreement, that became effective October 1, 1986. Under the pooling agreement, Donegal Mutual and Atlantic States pool substantially all of their respective premiums, losses and loss expenses to the reinsurance pool, and the reinsurance pool, acting through Donegal Mutual, then cedes a portion of the pooled business, culture iscurrently 80%, to maintainour subsidiary, Atlantic States, and strengthen our founding principles and values.

Donegal Mutual retains the remaining 20%. Since we established Atlantic States in 1986, Donegal Mutual and our insurance subsidiaries have conducted business together as the Donegal Insurance Group, while retaining their separate legal and corporate existences. Donegal Mutual and Atlantic States share the underwriting results in proportion to their respective participation in the underwriting pool. As the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries share a combined business plan to enhance market penetration and underwriting profitability objectives. As such, Donegal Mutual and our insurance subsidiaries share the same business philosophies, the same management, the same employees and the same facilities and offer the same types of insurance products. We believe Donegal Mutual’s majority voting interest in usthe combined voting power of our Class A common stock and of our Class B common stock fosters our ability to implement our business philosophies, enjoy management continuity, maintain superior employee relations and provide a stable environment within which we can grow our businesses.

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.

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The products Donegal Mutual and our insurance subsidiaries offer are generally complementary, which permits the Donegal Insurance Group to offer a broad range of products in 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 Donegal Mutual and our insurance subsidiaries offer generally relate to specific risk profiles within similar classes of business, such as preferred tier products versus standard tier products. Donegal Mutual and we do not allocate all of the standard risk gradients to one company. As a result, the underwriting profitabilityresults of the business the individual companies write directly will vary. However, since the underwriting pool homogenizes the risk characteristics of all business Donegal Mutual and our insurance subsidiaries write directly, Donegal Mutual and Atlantic States share the underwriting results in proportion to their respective participation in the underwriting pool.write directly. We receive 80% of the results of the underwriting pool because Atlantic States has an 80% participation in the pool. The business Atlantic States derives from the underwriting pool represents a significant percentage of our total consolidated revenues. However, that percentage has gradually decreased over the past few years as we have acquired a number of other property and casualty insurance companies in other jurisdictions that do not participate in the underwriting pool.

Since 1986, Donegal Mutual and our insurance company subsidiaries have conducted business together as the Donegal Insurance Group. During 2011, A.M. Best Company reported that the Donegal Insurance Group ranked as the 103^rd largest property and casualty insurance group in the United States based on 2010 net premiums written. In addition, in 2011 A.M. Best Company affirmed the Donegal Insurance Group A.M. Best rating of A (Excellent).

From time to time, the board of directors of Donegal Mutual and our board of directors review our structure and relationships. As a result of the foregoing actions, both boards of directors believe, as of the date of this proxy statement, that the Donegal Mutual-DGI structure continues to be appropriate for our respective businesses and operations.

Our Formation

In the mid-1980s, Donegal Mutual recognized the desirability, as a mutual insurance company, of developing additional sources of capital and surplus so it could remain competitive and have the surplus to expand its business and ensure its long-term viability. Donegal Mutual determined to implement a downstream holding company structure as one of its business strategies. Accordingly, in 1986, Donegal Mutual formed us as a downstream holding company. Initially, Donegal Mutual owned all of our outstanding common stock. We in turn formed Atlantic States as our wholly owned property and casualty insurance company subsidiary. We subsequently effected a public offering in September 1986 to provide the surplus necessary to support the business Atlantic States began to receive on October 1, 1986 as its share under a proportional reinsurance agreement, or the pooling agreement, between Donegal Mutual and Atlantic States that became effective on that date.

Under the pooling agreement, Donegal Mutual and Atlantic States pool substantially all of their respective premiums, losses and loss expenses. Donegal Mutual then cedes 80% of the pooled business to Atlantic States. Our insurance subsidiaries pay dividends to us annually. During the year ended December 31, 2011, our insurance subsidiaries paid a total of $16.0 million in dividends to us. These dividends are the major source of the funds we utilize to pay quarterly cash dividends to our stockholders. Donegal Mutual received $5.6 million in dividends from us during the year ended December 31, 2011.

As the capital of Atlantic States and our other insurance subsidiaries has increased, the underwriting capacity of our insurance subsidiaries, including Atlantic States, has proportionately increased. The size of the underwriting pool has increased substantially. Therefore, as we originally planned in the mid-1980s, Atlantic States has successfully raised the capital necessary to support the growth of its direct business as well as to accept increases in its allocation of business from the underwriting pool. Atlantic States’ allocationIn addition, the portion of the pooled businessunderwriting pool allocated to Atlantic States has increased from an initial allocation of 35% in 1986 to an 80% allocation since March 1, 2008. We do not anticipate any further change in the pooling agreement between Atlantic States and Donegal Mutual in the foreseeable future, including any change in the percentage participation of Atlantic States in the underwriting pool.

From time to time, the board of directors of Donegal Mutual and our board of directors review our structure and relationships. The most recent such review occurred in February 2014. As a result of these reviews, both our board of directors and Donegal Mutual’s board of directors reaffirmed their belief, as of the date of this proxy statement, that the Donegal Mutual-DGI structure and the inter-company relationships we describe in this proxy statement continue to be appropriate for the respective businesses and operations of DGI and of Donegal Mutual. Our board of directors reaffirmed in February 2014 that Donegal Mutual’s majority voting control of us is in the best interests of our stockholders, Donegal Mutual’s employees who provide services to us and our subsidiaries, the policyholders of our insurance subsidiaries and the general public.

Our insurance subsidiaries pay dividends to us annually. During the year ended December 31, 2013, our insurance subsidiaries paid a total of $12.5 million in dividends to us. These dividends are a major source of the funds we utilize to pay quarterly cash dividends to our stockholders. We paid Donegal Mutual $6.6 million in stockholder dividends during the year ended December 31, 2013.

Our Recapitalization in 2001

We recapitalized ineffective April 19, 2001. WeAt that time, we effected a one-for-three reverse stock split of our common stock and renamed it Class B common stock and issued two shares of our Class A common stock as a stock dividend for each post-reverse stock split share of our Class B common stock. Our Class A common stock has one-tenth of a vote per share and our Class B common stock has one vote per share. As a result of the reverse split and the stock dividend, each of our stockholders at April 19, 2001 continued to own the same number of shares of our common stock, with one-third of the shares being shares of our Class B common stock and two-thirds of the shares being shares of our Class A common stock. As a result, the relative voting power and equity interest of all of the stockholders of DGI at the time of our then stockholdersrecapitalization remained constant. Donegal Mutual’s continued ownership of more than a majority of the aggregate voting power of our outstanding shares of our Class A common stock and our Class B common stock after the recapitalization better enables us to maintain our long-term relationship with Donegal Mutual, which our board of directors believes is a central part of our historical business strategy.strategy and success.

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We effected our recapitalization because we believed in 2001, and continue to believe as of the date of this proxy statement, that a capital structure that has more than one class of publicly traded securities offers us a number of benefits. The principal benefit to us from our recapitalizationtwo-class capital structure is our ability to issue our Class A common stock or securities convertible into or exchangeable for our Class A common stock for financing, acquisition and compensation purposes without materially adversely affecting the relative voting power of any of our stockholders, including Donegal Mutual. At the time of our recapitalization in 2001 and continuing to the current time, our

board of directors recognized that our recapitalization was likely to favor longer-term investors, including Donegal Mutual, and could discourage attempts to acquire us, which our board of directors believedcontinues to bebelieve is remote in any event because of Donegal Mutual has ownedMutual’s continuing ownership of more than a majority of the voting power of our common stock since our formation in 1986.stock.

Every holder of our Class A common stock and our Class B common stock has invested inwho owns shares of our Class A common stock andor our Class B common stock has purchased our Class A common stock or our Class B common stock with the prior knowledge and consistent disclosure by us that Donegal Mutual had,has, since our formation greater-than-majorityin 1986, held majority voting control of us forus. For the reasons we discuss in this proxy statement, and that Donegal Mutual intends to retain that greater-than-majoritymajority voting control for the long-term future because itDonegal Mutual believes that greater-than-majorityits majority voting control of us is in our long-term best interests and the long-term best interests of Donegal Mutual.

We believe our relationships withThe Continuing Relationship of Donegal Mutual since 1986 have madeand DGI

Our board of directors remains of the opinion that preservation of the relationship between Donegal Mutual and us and our status as a substantial contribution to our growth, financial condition and successpublic company majority-controlled by Donegal Mutual is in the propertybest interests of all of the constituencies that we and casualty insurance industry and will continue to be a benefit to us, to Donegal Mutual serve, including:

We believe our relationship with Donegal Mutual offers us and our insurance subsidiaries with many advantages. We believe thesea number of competitive advantages, includeincluding the following:

In the latter portion of the fourth quarter of 2011 and the first quarter of 2012, the board of directors of Donegal Mutual undertook a review of the relationships between Donegal Mutual and DGI and determined that continuing the current relationships and the current corporate structure of Donegal Mutual and DGI is in the best interest of Donegal Mutual and its various constituencies.

We refer to our Form 10-K Annual Reportannual report for theour fiscal year ended December 31, 20112013 for a further discussion of our business strategy.

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Our Strategy to Maximize Stockholder Value

A fundamental goal of our board of directors and management is to maximize stockholder value over the long-term. We conduct our operations with this fundamental goal in mind. Our business strategies seek to maximize stockholder value by improving operating efficiencies as well as pursuing internal and external growth in order to enhance the long-term profitability of our businesses. Our board of directors and management regularly evaluate our business strategies and concentrate on improving our long-term, sustainable earnings. We focus on:

The Coordinating Committee

Donegal Mutual and we have maintained a coordinating committee since our formation in 1986. The coordinating committee consists of two members of our board of directors, neither of whom is a member of Donegal Mutual’s board of directors, and two members of Donegal Mutual’s board of directors, neither of whom is a member of our board of directors. The purpose of the coordinating committee is to establish and maintain a process for an ongoing evaluation of the fairness of the terms of the transactions between Donegal Mutual, our insurance subsidiaries and us.

Any change to an agreement between Donegal Mutual, on the one hand, and us or any of our insurance subsidiaries on the other hand, or any new agreement between Donegal Mutual, on the one hand, and us or oneany of our insurance subsidiaries, or any change to an existing agreement between Donegal Mutual and us or one of our insurance subsidiaries,on the other hand, is also subject to the applicable provisions of the Pennsylvania Insurance Company Law of 1921, as amended, and the Pennsylvania Insurance Holding Company Act, as amended, or the PHCA. The coordinating committee utilizes the following process in considering whether to approve a new agreement between Donegal Mutual and us or one or more of our insurance subsidiaries or ato change in an existing agreement between Donegal Mutual and us or one or more of our insurance subsidiaries:

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The coordinating committee also meets annually during the first two months of each year to review each existing agreement and each on-going transaction between Donegal Mutual and us or one or more of our insurance subsidiaries, including a number ofthe reinsurance agreements between Donegal Mutual and our insurance subsidiaries. The purpose of this annual review is to examine the results of thethese reinsurance agreements over the immediately preceding year and for the fivefour preceding years and to determine if the results of the existing agreements between Donegal Mutual and us and our insurance subsidiaries remain fair and equitable to us and our stockholders and fair and equitable to Donegal Mutual and its policyholders or if Donegal Mutual and we should mutually agree to certain adjustments. In the case of these reinsurance agreements, the adjustments typically relateconsist of adjustments to the reinsurance premiums, losses covered and reinstatement premiums.premiums designed to achieve relative parity between Donegal Mutual, on the one hand, and us or one or more of our insurance subsidiaries, on the other hand, over a period of several years. These agreements are ongoing in nature and will continue in effect throughout 20122014 in the ordinary course of business.our business and the business of our insurance subsidiaries and in the ordinary course of the business of Donegal Mutual.

Robert S. Bolinger and John J. Lyons serve as our members of the coordinating committee. See “Proposal 1 —– Election of Directors” for certain biographical information about Messrs. Bolinger and Lyons. Dennis J. Bixenman and John E. Hiestand serve as Donegal Mutual’s members of the coordinating committee. Certain biographical information about Messrs. Bixenman and Hiestand is as follows:

Mr. Bixenman, age 65,67, has been a director of Donegal Mutual since 2007 and is currently a2008. Mr. Bixenman retired at the end of 2012 as vice president and senior consultant atof Williams & Company Consulting, Inc., an environmental and business consulting firm with its headquarters in Sioux City, Iowa. Mr. Bixenman is a certified public accountant with extensive experience in auditing and preparing financial statements. Mr. Bixenman beneficially owns 1,95530,488 shares of our Class A common stock. He owns no shares of our Class B common stock. As director compensation in 2011,2013, Donegal Mutual paid Mr. Bixenman cash fees of $43,700$49,500 and issued 311granted him a restricted stock award of 400 shares of Class A common stock to himwith a value at the time of issuance in January 2013 of $5,616. Mr. Bixenman also received $500 in cash fees as a restricted stock award.compensation from Donegal Mutual for each meeting attended as one of Donegal Mutual’s members on the coordinating committee during 2013.

Mr. Hiestand, age 73,76, has been a director of Donegal Mutual since 1983 and has been a self-employed provider of insurance administrative services for over 20 years. Mr. Hiestand served as a director of Central Savings and Loan Association in Columbia, Pennsylvania from 1982 to 1992. Mr. Hiestand beneficially owns 6,32632,002 shares of our Class A common stock andstock. He owns 157 shares of our Class B common stock. As director compensation in 2011,2013, Donegal Mutual paid Mr. Hiestand cash fees of $38,250$47,750 and issued 311granted him a restricted stock award of 400 shares of Class A common stock to himwith a value at the time of issuance in January 2013 of $5,616. Mr. Hiestand also received $500 in cash fees as a restricted stock award.compensation from Donegal Mutual for each meeting attended as one of Donegal Mutual’s members on the coordinating committee during 2013.

The Relationship of Donegal Mutual and DGIInter-Company Transactions

Donegal Mutual provides facilities, personnel and other services to us and our insurance subsidiaries.subsidiaries pursuant to a service agreement that has been in effect since 1986. Donegal Mutual allocates certain related expenses to Atlantic States in accordance with the relative participation of Donegal Mutual and Atlantic States in

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the pooling agreement.underwriting pool. Our insurance subsidiaries other than Atlantic States reimburse Donegal Mutual for those services for their respective personnel costs and bear their proportionate share of information services costs based on their written insurance premiums compared to the total written insurance premiums of the Donegal Insurance Group. ChargesDonegal Mutual’s charges for these services totaled $64.7$94.0 million in 2011,2013 compared to $64.0$78.8 million in 2010.2012.

We lease office equipment and automobiles to Donegal Mutual and Southern. Donegal Mutual and Southern made total lease payments to us of $957,353$850,000 in 2011,2013 under these leases compared to $922,937$953,000 in 2010.2012.

Donegal Mutual and Atlantic States participateAs discussed previously in an underwriting pool. Both companies cede substantially all of their respective premiums, losses and loss expenses and receive an allocated percentage of their combined underwriting results. The underwriting pool excludes certain intercompany reinsurance Donegal Mutual assumes from our insurance subsidiaries. Since March 1, 2008, Atlantic States has had an 80% share of the results of the underwriting pool and Donegal Mutual has had a 20% share of the results of the underwriting pool.

this proxy statement, Donegal Mutual and Atlantic States may amend or terminate the pooling agreement at the end of any calendar year by mutual agreement, subject to approval by the coordinating committee and approval by the respective boards of directors of Donegal Mutual and Atlantic States and by the coordinating committee.States. Our 2011 annual report to stockholders2013 Annual Report contains additional information describing the underwriting pool.

In addition to the pooling agreement, and third-party reinsurance agreements, our insurance subsidiaries, in the ordinary course of their businesses, have various ongoing reinsurance agreements with Donegal Mutual.Mutual that renew from year to year. The coordinating committee reviews these reinsurance agreements annually so as to achieve relative parity between premiums charged and losses incurred between Donegal Mutual and our insurance subsidiaries over a period of years. We believe the reinsurance arrangements between Donegal Mutual and our insurance subsidiaries are no less favorable to our insurance subsidiaries than the terms and conditions of reinsurance available to our insurance subsidiaries from independent third parties. These agreements include:

The coordinating committee annually reviews each of the agreements and transactions we describe above between Donegal Mutual and our insurance subsidiaries and the results thereof to each of Donegal Mutual and us for the most recent year and for the past five years. In February 2012,January 2014, the coordinating committee reviewed the terms of such agreements and certain amendments to the premiums payable and retentions involved. As so amended, the coordinating committee approved the agreementsmet and determined that the terms of these reinsurance agreements and transactions were fair and equitable to us and our stockholders and fair and equitable to Donegal Mutual and its policyholders. Accordingly, the coordinating committee unanimously approved the continuation of the terms of such agreements and transactions, for 2012.with non-material adjustments, through the next scheduled annual review during the first two months of 2015.

We refer you to note 3 of the notes to our consolidated financial statements we include in our 2011 annual report to stockholders2013 Annual Report for further information about the reinsurance agreements between Donegal Mutual and our insurance subsidiaries. The intent of these catastrophe and excess of loss reinsurance agreements is to lessen the effects of a

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single large loss, or an accumulation of smaller losses arising from one event, to levels that are appropriate given each insurance subsidiary’sthe size, underwriting profile and surplus capacity.capacity of each of our insurance subsidiaries.

Union Community Bank

We own 48.2% and Donegal Mutual owns 51.8% of Donegal Financial Services Corporation,DFSC. Since May 2011, DFSC has owned Union Community Bank, or DFSC. Each ofUCB. UCB converted from a federally-chartered savings bank to a state-chartered savings bank in 2013.

Because DFSC owns UCB, Donegal Mutual DGIand we, as the two owners of DFSC, and DFSC constituteare grandfathered unitary savings and loan holding companies regulated under the federal banking laws. On May 6, 2011, Union National Financial Corporation,Home Owners’ Loan Act, or UNNF,HOLA. The Board of Governors of the Federal Reserve System, or the Board, supervises and regulates grandfathered unitary savings and loan holding companies, including Donegal Mutual, DFSC and us.

No person may acquire control of a bankgrandfathered unitary savings and loan holding company headquarteredwithout complying with regulatory requirements under either HOLA, if the acquiror is a company, or the Change in Lancaster, Pennsylvania, mergedBank Control Act (the “CBCA”), which can apply to any kind of acquirer, including an individual. The Board regulations under the CBCA establish a rebuttable presumption of control applicable to any person who wishes to acquire more than 10% of any class of voting security of a grandfathered unitary savings and loan holding company that has a class of voting securities registered under the Exchange Act. DGI is such an entity.

We do not consolidate the financial statements of DFSC and its wholly owned subsidiary, UCB, with and into DFSC, withour financial statements. We have included the separate consolidated financial statements of DFSC as a schedule to our Form 10-K annual report for the surviving corporation. On the same date, Union National Community Bank, a national banking association headquartered in Lancaster, Pennsylvania and a subsidiary of UNNF, merged with and into Province Bank FSB, a federal savings bank and a subsidiary of DFSC. Upon the merger, Province Bank FSB changed its name to Union Community Bank FSB and continued its status as a federal savings bank. UCB is currently in the process of converting to a Pennsylvania-chartered stock savings bank. Donegal Mutual and we believe such a conversion would be beneficial. year ended December 31, 2013.

At December 31, 2011,2013, UCB had total assets of $533.2$512.8 million, total deposits of $454.9$428.7 million and total loans of $342.9$274.6 million. UCB had net income of $6.3 million for the year ended December 31, 2013, compared to net income of $9.8 million for the year ended December 31, 2012. Donegal Mutual and UCB are also parties to a customary administrative services agreement. Under this agreement, Donegal Mutual provides various services, principally internal audit, investment, information technology, administrative support, facility and equipment maintenance services and purchasing, to UCB, subject to the overall limitation that the costs Donegal Mutual charges to UCB for these services may not exceed the costs of independent vendors for similar services and further subject to annual maximum cost limitations the administrative services agreement specifies. Donegal Mutual and we also conduct routine banking operationsbusiness with UCB in the ordinary course of business with UCB.of the Donegal Insurance Group.

Donegal Mutual leases 3,600 square feet in a Donegal Mutual-owned building in Marietta, Pennsylvania to UCB. In addition, UCB leases 3,000 square feet of space in a building in Lancaster, Pennsylvania from DFSC. Both leases provide for an annual rent based on an independent appraisal. Donegal Mutual and UCB are also parties to an administrative services agreement whereby Donegal Mutual provides various human resources services, principally payroll and employee benefits administration, administrative support, facility and equipment maintenance services and purchasing, to UCB, subject to the overall limitation that the costs Donegal Mutual charges to UCB may not exceed the costs of independent vendors for similar services and further subject to annual maximum cost limitations specified in the administrative services agreement.appraisal each year.

The Risk Management Committee

The Donegal Mutual and we maintainInsurance Group maintains a risk management committee. The risk management committee consists of 14 officers of Donegal Mutual, seven of whom are also executive officers of DGI. The purpose of the risk management committee is to assess and monitor the major strategic, operational, regulatory, informational and external risks that affect the business the Donegal MutualInsurance Group transacts and we transact and Donegal Mutual’s and ourthe internal and external resources of the Donegal Insurance Group for assessing and controlling such risk.risks. The Donegal Insurance Group’s risk management committee meets quarterly, and annually evaluates its performance of its responsibilities. The risk management committee submits reports to our board of directors no less frequently than quarterly and the officer in charge of the activities of the risk management committee reports quarterly in person to our board of directors.

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The responsibilities of the risk management committee on behalf of the Donegal Insurance Group include:

Our risk management committee meets quarterly and

CORPORATE GOVERNANCE

Our board of directors has adoptedmaintains corporate governance guidelines to assist the committees of our board of directors in the discharge of their respective responsibilities. Each committee of our board of directors has a written charter that sets forth the purposes, goals and responsibilities of the committee as well as the qualifications for committee membership, procedures for the appointment and removal of committee members, committee structure and operations and committee reporting to our board of directors. You may view the charters of our executive committee, our audit committee, our nominating committee and our compensation committee on our website atwww.donegalgroup.com. The charters of the committees of our board of directors provide our stockholders with a description of the manner in which our board of directors and its committees function.operate.

The Composition of Our Board of Directors

Our by-laws provide that the number of members of our board of directors cannotshall not be less than seven nor more than twelve.12. Our board of directors fixes the size of our board of directors within these limits and may increase or decrease the size of our board of directors from time to time. Currently, our board of directors has fixed the number of members of our board of directors at 11. Our board of directors hasconsists of three classes, with thethree-yearterms of one of the classes expiring at three successive annual meetings.meetings and upon each member of the newly elected class of directors taking office.

BecauseWe constitute a “controlled company” under applicable NASDAQ regulations because Donegal Mutual owns more than a majority of the combinedaggregate voting power of ourthe outstanding shares of our Class A common stock and ourthe outstanding shares of our Class B common stock, we constitute a “controlled company” under applicable NASDAQ regulations.stock. As a controlled company, we are exempt from a number of NASDAQ corporate governance requirements, including the requirement that a majority of the members of our board of directors be independent.

The composition of our board of directors is, however, subject to the corporate governance rules of the PHCA. The PHCA requires that the board of directors of a Pennsylvania-domiciled insurance company or of a company that controls a Pennsylvania-domiciled insurance company, such as we do, maintain a committee or committees that undertake certain corporate governance responsibilities. The PHCA further requires that the members of these committees be solely directors who are not officers or employees of the Pennsylvania-domiciled insurance company or its holding company and who do not own beneficially a 10% or greater interest in the voting stock of such insurance company or its holding company. We maintain an audit committee, a compensation committee and a nominating committee that comply withwhose respective members satisfy the requirements of the PHCA.

Pursuant to the PHCA, the committees of our board of directors annually discharge each of the following responsibilities:

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The Committees of Our Board of Directors

We expect our directors to attend all meetings of our board of directors, meetings of the committees of our board of directors on which they serve and meetings of our stockholders. We further expect our directors to devote the time necessary to fulfill their responsibilities as directors. During 2011,2013, each of our directors attended 75% or

more of the total number of meetings of our board of directors and of the meetings of the committees of our board of directors on which that director serves.served. All of the members of our board of directors attended our 20112013 annual meeting of stockholders. Each of the committees of our board of directors has a written charter that stockholders may view on our website. Our website address iswww.donegalgroup.com. Each of the committees of our board of directors reviews its charter annually. On March 5, 2012, the compensation committee adopted certain non-substantive changes to its charter.

Our board of directors has delegated some of its authority to the following four committees of our board of directors:

In addition, together with Donegal Mutual, we jointly maintain a coordinating committee. We refer you to “The Relationship of Donegal Mutual and DGI —– The Coordinating Committee.”Committee” beginning on page 11 of this proxy statement for information as to the responsibilities of the coordinating committee and the identity of its members.

The following table shows the number of meetings each committee of our board of directors held in 20112013 and the attendance of the members of those committees at their meetings.the meetings of the committees on which they served. Mr. Berlucchi, Mrs. Gilmartin and Mr. Moore aredid not currently servingserve as a member of any of the committees of our board of directors.directors during 2013.

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The Executive Committee of Our Board of Directors

Members: Messrs. Glatfelter, Kraft and Nikolaus (Chairperson) and Sherbahn.. The executive committee has the authority to take all action that our full board of directors can take, consistent with the DGCL, our certificate of incorporation and our by-laws, between meetings of our board of directors.

The responsibilities of the executive committee include:

The Audit Committee of Our Board of Directors

Members: Messrs. Bolinger, Hess, Lyons, Mahan and Wampler (Chairperson). Each member of ourthe audit committee satisfies the independence requirements of the SEC and the PHCA and is in compliance with applicable provisions of the PHCA and the Sarbanes-Oxley Act of 2002. Mr. Wampler, who is a retired certified public accountant, servesand Mr. Hess, who is a certified public accountant in active practice, serve as the designated financial expert membermembers of ourthe audit committee.

The responsibilities of the audit committee include:

The Nominating Committee of Our Board of Directors

Members: Messrs. Glatfelter (Chairperson), Kraft, Mahan and Sherbahn.Wampler.

The responsibilities of the nominating committee include:

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The Compensation Committee of Our Board of Directors

Members: Messrs. Glatfelter, Hess, Lyons (Chairperson), Sherbahn and Wampler. Because the employees who provide services to us are employees of Donegal Mutual, for reasons of efficiency and cost savings and because our insurance subsidiaries are members of the Donegal Insurance Group along with Donegal Mutual, ourOur compensation committee and the compensation committee of Donegal Mutual conduct joint meetingsmeet jointly from time to time. The members of the Donegal Mutual compensation committee, as of the date of this proxy statement, are Scott A. Berlucchi (Chairperson), Philip H. Glatfelter, II, Jack L. Hess and R. Richard Sherbahn. Following these joint meetings, our compensation committee meets and makes compensation determinations with respect to the compensation of our named executive officers and our other officers and employees.

The responsibilities of theour compensation committee include:

See “Executive Compensation Discussion and Analysis” for further information.

Compensation Committee Interlocks and Insider Participation

No member of theour compensation committee is a former or current officer of Donegal Mutual or us, nor does any member of theour compensation committee have any other interlocking relationships, based onas current SEC rules and regulations.regulations define such terms.

Related Person Transactions

We have a written related person policy regardingthat governs the review, approval or ratification of transactions between us and our executive officers, directors and our 10% or greater stockholders. SEC rules and regulations require us tothat we disclose in our proxy statements specified information reporting any related person transactions in this proxy statementexcess of a specified amount and certain other filings we submit to the SEC. This policy applies, in our case, to anyall transactions with related parties with the exception of those transactions between Donegal Mutual and us or one or more of our insurance subsidiaries that require the prior approval of our coordinating committee. See “The Relationship of Donegal Mutual and DGI —- The Coordinating Committee.Committee,” beginning on page 11 of this proxy statement. Our related person policy establishes procedures for our approvalprior review of proposed transactions between us and a related personsperson because we recognize that related person transactions can presentsuggest a heightened risk of a conflict of interest and can create the appearance of impropriety. Applicable SEC regulations define a “related person” as including our directors, our executive officers, holdersa holder of 5% or more of the outstanding shares of our Class A common stock, a holder of 5% or more of the outstanding shares of our Class B common stock and each of the immediate family members of each of those persons. Our policy requires that all proposed related person transactions mustfirst receive the approval of our audit committee before we can enter intoagree to the transaction. In addition, if the related-party transaction continues in effect for more than one year, our audit committee must annually approve the continuation of thethat transaction.

Donald H. Nikolaus, our presidentchairman and chief executive officer and a member of our board of directors and the president and a director of Donegal Mutual, is a partner in the law firm of Nikolaus & Hohenadel. Such firm

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has served as general counsel to Donegal Mutual since 19701972 and as our general counsel since 1986, principally in connection with the defense of insurance claims litigation arising in Lancaster, Dauphin and York counties of Pennsylvania. We pay such firm its customary fees for suchits services. We paid Nikolaus & Hohenadel legal fees of $420,760$449,911 in 20102012 and $418,818$466,393 in 2011.2013.

Patricia A. Gilmartin, one of our directors and a director of Donegal Mutual, iswas an employee of Associated Donegal Insurance Brokers.Brokers from 1969 to February 2013. That firm has no affiliation with us except that it receives insurance commissions in the ordinary course of business from our insurance subsidiaries and Donegal Mutual in the ordinary course of business and in accordance with their standard commission schedules and agency contracts.

Frederick W. Dreher, a director of Donegal Mutual since December 19, 1996, has been a partner in the law firm of Duane Morris LLP since 1970. Since 1986, Duane Morris LLP has represented us, our insurance subsidiaries, and Donegal Mutual, DFSC and UCB in certain legal matters. We pay Duane Morris LLP its customary fees for suchits services. We,The Donegal MutualInsurance Group and DFSC paid Duane Morris LLP legal fees of $2,555,384$1,405,781 in 20102012 and $2,647,838$1,567,837 in 2011.2013.

Donegal Mutual and we conduct routine banking transactions in the ordinary course of our business with UCB and on terms and conditions no more favorable to Donegal Mutual or DGI than the terms and conditions on which UCB offers its banking services to independent third parties. Donegal Mutual and UCB are also parties to a customary administrative services agreement pursuant to which UCB reimburses Donegal Mutual for its costs in providing certain administrative services to UCB.

Our Code of Business Conduct and Ethics

We follow our code of business conduct and ethics in conducting business with third parties because we believe it is important that we conduct our business with integrity and with the trust of the people with whom we do business. Our code of business conduct and ethics provides guidance to our employees, including our named executive officers, and the independent agents who represent Donegal Mutual and our insurance subsidiaries as they deal with the legal and ethical issues that arise in our business dealings with others. You may view our code of business conduct and ethics on our website atwww.donegalgroup.com.

We also maintain an internal audit department that evaluates our business and financial processes, our management of risk and the efficacy of our financial controls. Our director of internal audit reports no less frequently than quarterly to the audit committee of our board of directors and to our board of directors.

EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

2013 Performance Review

Our results of operations for 2013 showed dramatic improvement compared to our results of operations for 2012 and for 2011, when an unusual frequency of severe storms, intense competition and a poor economic climate in our market areas resulted in underwriting results substantially less than our planned underwriting results. We further enhanced our already strong financial condition in 2013. The following table depicts our net revenues and our net income for the year ended December 31, 2013 and the price of our Class A common stock and Class B common stock at December 31, 2013 compared to the same data at December 31, 2012.