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 17, 201420, 2017

To the Stockholders of

DONEGAL GROUP INC.:

We will hold our 20142017 annual meeting of stockholders (our “2014“2017 Annual Meeting”) at 10:00 a.m., local time, on Thursday, April 17, 2014,20, 2017, at the Heritage Hotel Lancaster, 500 Centerville Road, Lancaster, Pennsylvania 17601. At our 20142017 Annual Meeting, our stockholders will actvote on the following items of stockholder business:

Our advance noticeby-laws require that our stockholders submit to us, not later than 12090 days prior to the first anniversary of the date on which we first mailed our next forthcomingproxy statement to stockholders for our most recent year’s annual meeting of stockholders, detailedthe information specified in thoseby-laws regarding any nomination by a stockholder of a candidate for election as a director or any proposal by a stockholder of any other item of stockholder business a stockholder wishes our stockholders to consider at our next forthcoming annual meeting of stockholders. That date was November 18, 2013December 21, 2016 with respect to our 20142017 Annual Meeting and is NovemberDecember 17, 20142017 with respect to our 20152018 annual meeting of stockholders. No stockholder made another nomination or other proposal for consideration by our stockholders at our 2017 Annual Meeting.

Therefore, under applicable law and ourby-laws, at our 20142017 Annual Meeting:

Our board of directors has established the close of business on March 7, 20143, 2017 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 20142017 Annual Meeting. Our certificate of incorporation doesand ourby-laws do not authorize cumulative voting in the election of our directors.

We include our 2013 annual report2016 Annual Report to stockholders (our “2016 Annual Report”) with this notice of our 20142017 Annual Meeting and our proxy statement relating to our 20142017 Annual Meeting. We also enclose a proxy card for you to sign, date and return in the accompanying postage-prepaid envelope that youYou 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 20142017 Annual Meeting in person, by mail, or vote by telephone or via the Internet as we describe on the accompanyingenclosed proxy card.card that you may use to vote by proxy at our 2017 Annual Meeting. Please return your duly signed and completed proxy card whether or not you plan to attend our 2017 Annual Meeting in person.

		By order of our board of directors,
Donald H. Nikolaus,
Chairman of the Board		Kevin G. Burke, President and Chief Executive Officer

March 17, 201416, 2017

Marietta, Pennsylvania

Important Notice Regarding the Availability of Our Proxy Materials for

Our 2014April 20, 2017 Annual Meeting We Will Hold on April 17, 2014

We enclose a printed copyThis mailing includes our notice of theour 2017 Annual Meeting, our proxy statement forwith respect to our 20142017 Annual Meeting and our 2013 annual report to stockholders with this notice of our 20142016 Annual Meeting.Report. You may also view each of these documents on the Internet atwww.proxyvote.com. www.proxyvote.com. No information on our website other than theour notice of our 2017 Annual Meeting, this proxy statement forwith respect to our 20142017 Annual Meeting and our 2013 annual report to stockholders2016 Annual Report constitutes a part of our proxy solicitation materials for our 20142017 Annual Meeting or part of our 2013 annual report to our stockholders.2016 Annual Report.

DONEGAL GROUP INC.

PROXY STATEMENT

Introduction

This proxy statement contains information relating to our 20142017 Annual Meeting. We will hold our 20142017 Annual Meeting on Thursday, April 17, 2014, at 10:00 a.m., local time, on Thursday, April 20, 2017, at the Heritage Hotel Lancaster, 500 Centerville Road, Lancaster, Pennsylvania 17601.

On March 17, 2014,2017, we mailedare commencing the mailing to our stockholders of record at the close of business on March 7, 2014 3, 2017 of:

We ask our stockholders to return their completed proxy cards promptly whether or not they plan to attend our 2017 Annual Meeting in person unless you prefera stockholder prefers to vote in person, by telephone or via the 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 pay the costs of preparing and mailing our proxy materials for our 2017 Annual Meeting to our stockholders for our 2014 Annual Meeting and making those materials available for our stockholders to view on the 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 20142017 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 communicationtelephone 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.

HighlightsSummary of Our 2013our 2016 Performance

For 2013,2016, our total revenues increased 8.2% and our net income and net income per diluted Class A share increased 6.2%, 14.0%46.7% and 12.1%50.6%, respectively, compared to 2012.2015. The following table depicts our total revenues, net income, and net income per diluted Class A share and net income per Class B share for the three years ended December 31, 2013, 20122016, 2015 and 2011.2014. For further information, we refer you to the financial statements includedwe include in our 20132016 Annual Report, which we have mailed to you simultaneously with the mailing of this proxy statement.Report.

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

(i)

(i)

(ii)

CONTENTS

(iii)

(iii)

(iv)

Unless we otherwise expressly indicate, all of the financial information we include or incorporate by reference in this proxy statement for our 20142017 Annual Meeting relates to our 20132016 fiscal year. Our 20132016 fiscal year began on January 1, 20132016 and ended on December 31, 2013.2016.

(v)(iv)

OUR 20142017 ANNUAL MEETING

In accordance with this proxy statement, our board of directors solicits proxies from our stockholders for use in connection with our 20142017 Annual Meeting and any adjournment or postponement of our 20142017 Annual Meeting. We will hold our 20142017 Annual Meeting at 10:00 a.m., local time, on Thursday, April 17, 201420, 2017 at the Heritage Hotel Lancaster, 500 Centerville Road, Lancaster, Pennsylvania 17601.

What is the agenda for our 20142017 Annual Meeting?

At our 20142017 Annual Meeting, our stockholders will consider and act upon the following four items of stockholder business:business we propose as follows:

What is the effect of our advance noticeby-laws?

Our advance noticeby-laws require that a stockholder provide us with a specified period of prior notice of that stockholder’s intention to nominate any candidate for election as a Class A director at our 20142017 Annual Meeting or to propose any other item of stockholder business for stockholder consideration at our 20142017 Annual Meeting.

Under ourOur advance noticeby-laws we annually establish a date. Thedate by which a stockholder must submit a stockholder proposal with respect to our next forthcoming annual meeting of stockholders. That date in general is 12090 days prior to the first anniversary of the mailing date of our proxy solicitation material for our prior year’s annual meeting of stockholders, after whichstockholders. After that 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’sour next forthcoming annual meeting of stockholders. For our 20142017 Annual Meeting, that date was November 18, 2013.December 21, 2016. For our 20152018 annual meeting of stockholders, that date is NovemberDecember 17, 2014.2017. The purpose of our advance noticeby-laws is to ensure that we can include in our annual proxy statements, for the information of all of our stockholders, all of the actions we or others propose to present for consideration by our stockholders at each of our annual meetings of stockholders.

No stockholder has nominated a candidate for election as a Class A director at our 20142017 Annual Meeting or proposed the transaction of any other item of stockholder business at our 20142017 Annual Meeting with the exception of the stockholder proposal we describe elsewhere in this proxy statement.Meeting. Accordingly, no item of stockholder business other than the threefour items of stockholder business we describe in our notice of our 20142017 Annual Meeting, as well as in this proxy statement, and the stockholder proposal, may properly come before our 20142017 Annual Meeting or any adjournment or postponement of our 20142017 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 20142017 Annual Meeting, to a vote of our stockholders at our 20142017 Annual Meeting.

We are a Delaware corporation. Therefore, the Delaware General Corporation Law, or the DGCL, our amended and restated certificate of incorporation as currently in effect and ourby-laws as currently in effect govern the conduct of business at our annual meetings 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.

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What is the quorum requirement for the conduct of business at our 20142017 Annual Meeting?

Ourby-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 for our 20142017 Annual Meeting voting together as a single class constitutes a quorum at our 20142017 Annual Meeting. Because Donegal Mutual owns approximately 65%72.9% of the aggregatecombined voting power of our outstanding Class A common stock and our outstanding Class B common stock outstanding on the record date and because all of the shares of our Class A common stock and all of theits shares of our Class B common stock Donegal Mutual owns will be present in person at our 20142017 Annual Meeting, the presence in person of the shares Donegal Mutual ownsa quorum will be present at our 2014 Annual Meeting will constitute the presence of a quorum at our 20142017 Annual Meeting. Because a quorum will be present at our 20142017 Annual Meeting, our stockholders will have the legal power and authority to conduct the four items of stockholder business at our 20142017 Annual Meeting that we describe in our notice of our 20142017 Annual Meeting and in this proxy statement.

What is the order of business at our 20142017 Annual Meeting?

Ourby-laws and applicable provisions of the DGCL govern the organization, conduct of business at and the adjournment or postponement of our 20142017 Annual Meeting. Our board of directors has designated Donald H. Nikolaus,Kevin G. Burke, our Chairmanpresident and Chief Executive Officer,chief executive officer, as the presiding officer of our 20142017 Annual Meeting. Mr. NikolausBurke will call our 20142017 Annual Meeting to order and will conduct the business of our 20142017 Annual Meeting, including voting upon the four items of stockholder business upon which our stockholders will vote at our 20142017 Annual Meeting. NoUnder ourby-laws, no other item of stockholder business may properly come before our 20142017 Annual Meeting. Mr. Nikolaus,Burke, as the presiding officer of our 20142017 Annual Meeting, will determine, in his discretion, the order of the items of stockholder business we will conduct at our 20142017 Annual Meeting and the procedural manner in which we will conduct the business of our 20142017 Annual Meeting.

We have historically conducted the voting on the items of stockholder business we submit for a stockholder vote at our annual meetings of stockholders as the first item of businessimmediately following the calling to order of our 2014 Annual Meeting to orderannual meetings and the determination of a quorum by the presiding officer of our Annual Meeting.annual meetings. We currently intend to follow a substantially similar procedure at our 20142017 Annual Meeting. After our stockholders have voted on the four items of stockholder business we describe in this proxy statement, and the judgesinspectors of election our board of directors has appointed have tallied the voting on those four items of stockholder business, Mr.Donald H. Nikolaus, our chairman of the board, Kevin G. Burke, our president and chief executive officer, and Jeffrey D. Miller, our executive vice president and chief financial officer, will then discuss our results of operations for 20132016 compared to 20122015 and our outlook for 2014.2017. After Mr. Nikolaus completes histhose remarks, the judgesinspectors of election for our 2017 Annual Meeting will announce the results of the voting on the four items of stockholder business.business on which our stockholders have voted at our 2017 Annual Meeting. Then Mr.Messrs. Nikolaus, Burke and Miller will, as they deem appropriate in his capacity as the presiding officer of our 2014 Annual Meeting, willtheir discretion under then prevailing circumstances, recognize stockholders who wish to ask pertinent questions or make comments as Mr. Nikolaus, in his discretion, deems appropriate under then prevailing circumstances.comments.

Who is entitled to notice of, and who may vote at, our 20142017 Annual Meeting?

Our board of directors established the close of business on March 7, 20143, 2017 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 20142017 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 the proxy of such stockholder of record, may attend, and vote at, our 20142017 Annual Meeting.

Each share of our Class A common stock held of record for our 20142017 Annual Meeting is entitledhas the right to castone-tenth of a vote per Class A share for each nominee for election as a Class A director at our 20142017 Annual Meeting and for each of the other items of stockholder business we submit to a vote of our stockholders at our 20142017 Annual Meeting.

Each share of our Class B common stock held of record for our 20142017 Annual Meeting is entitledhas the right to cast one vote per Class B share for each nominee for election as a Class A director at our 20142017 Annual Meeting and for each of the other items of stockholder business we submit to a vote of our stockholders at our 20142017 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 20142017 Annual Meeting.Meeting in person. Even if you currently plan to attend our 20142017 Annual Meeting and vote in person, we recommend that you vote by proxy using one of the methods we describe in this proxy statement under “How do you vote yourthe DGI shares you own that are registered in your name?” By voting inusing one of those ways,methods of voting, we can then recognize your votes even if you later do not, or cannot, for any reason attend our 20142017 Annual Meeting and vote in person.

OurComputershare, our independent stock transfer agent, Computershare Trust Company, N.A. (“Computershare”), has prepared and certified a list of all 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, 2014,3, 2017, the record date for our 20142017 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 entitled to vote in person or by proxy at our 20142017 Annual Meeting. For example, you are a stockholder of record if you received this proxy statement and the related materials for our 20142017 Annual Meeting directly from us through our transfermailing agent and not indirectly from another person who is the record holder of the shares you own beneficially, such as a bank, a brokerage firm or other fiduciary or representative.

Ourby-laws, in accordancecompliance 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 preceding the date of our 20142017 Annual Meeting, to examine, at our principal executive offices in Marietta, Pennsylvania, an alphabetical list of the holders of record for our 20142017 Annual Meeting of our Class A common stock and an alphabetical list of the holders of record for our 20142017 Annual Meeting of our Class B common stock. We will grant the request of a stockholder of record’s requestrecord 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 theten-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 within suchten-day period is not proper or not legally relevant to the four items of stockholder business we will conduct at our 20142017 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 other fiduciary or representative, which we also knownrefer to in this proxy statement as shares held in “street name,” we consider you the beneficial owner of the shares your bank, your broker or your other fiduciary or representative holds for you, and we consider your bank, your broker or your other fiduciary or representative the stockholder of record of your shares. Your bank, your broker or your other fiduciary or representative will send you separately, as the beneficial owner, information describing the procedure for you to vote your shares. You should follow the instructions your bank, your broker or your other fiduciary or representative provides to you on how to vote your shares.shares held in street name in the manner you determine.

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Which of the items of stockholder business we will conduct at our 20142017 Annual Meeting do we consider routine and which do we considernon-routine?

We will transact four items of stockholder business at our 20142017 Annual Meeting. WeUnder applicable regulations, we consider these items routine or non-routine as indicated in the table below:election of four Class A directors, the approval, on anon-binding advisory basis, of

Under applicable rules, a broker or other non-beneficial record owner maywho is not also the beneficial owner, such as a broker, does not have discretion to vote onnon-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 necessary to approve the items of stockholder business on whichthat will come before our stockholders will consider and vote at our 20142017 Annual Meeting?

Election of our Class A Directors

The four nomineespersons our board of directors has nominated for election as Class A directors are the only nominees eligible for election as Class A directors at our 20142017 Annual Meeting and any adjournment or postponement of our 20142017 Annual Meeting. Our certificate of incorporation and ourby-laws do not authorize cumulative voting in the election of our directors. As the DGCL permits and ourby-laws provide, we utilize a plurality of the votes cast standard, and not a majority of the outstanding votes cast standard, in determining the election of directors.our directors by our stockholders. 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 20142017 Annual Meeting, our stockholders will elect as Class A directors the four nominees for election as Class A directors who receive the highest number of stockholder votes at our 20142017 Annual Meeting. The four persons elected as Class A directors at our 2017 Annual Meeting will serve for a term of three years and until the election of their respective successors and their respective successors take office.

If you properly submit your proxy and markWithhold Authority for the election of some or all of theour nominees for election as Class A directors, the proxies we have named will not vote your shares with respect tofor the election of the nominee or nominees for election as Class A directordirectors as to whom you have withheld authority. We will count the shares for which you have withheld authority to vote for the election of Class A directors as present at our 20142017 Annual Meeting for the purposes of determining whether a quorum is present at our 20142017 Annual Meeting. Because Donegal Mutual owns 72.9% of the combined voting power of our outstanding Class A common stock and our outstanding Class B common stock and will vote all of its shares for the election of the four nominees for Class A director we name in this proxy statement, our stockholders will elect those Class A nominees will be elected(Robert S. Bolinger, Kevin G. Burke, Patricia A. Gilmartin and Jack L. Hess) at our 2017 Annual Meeting to serve as Class A directors for a term of three years and until their successors take office even if all of our 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.their respective successors and their respective successors take office.

Approval, on anon-binding advisory basis, of the Compensationcompensation of Our Named Executive Officersour named executive officers

We are askingAs the DGCL permits and our stockholdersby-laws provide, we utilize a plurality of the votes cast standard, and not a majority of the outstanding votes cast standard, in determining the approval, on anon-binding advisory basis, of our proposal to approve the compensation of our named executive officers by a non-binding advisory vote. Our Boardofficers. Because Donegal Mutual owns 72.9% 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 beginningapprove, 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 cumulativenon-binding advisory 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 towill approve the compensation of our named executive officers at our 20142017 Annual MeetingMeeting.

Determination of the frequency of our submission to our stockholders of the approval, on ananon-binding advisory basis, that doesof the compensation of our named executive officers

As the DGCL permits and ourby-laws provide, we utilize a plurality of the votes cast standard, and not binda majority of the outstanding votes cast standard, in determining the approval of our board of directors.proposal to submit to our

Because Donegal Mutual will vote all of its DGI shares for

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stockholders the approval, on anon-binding advisory basis, of the compensation of our named executive officers once every three years. Because Donegal Mutual owns 72.9% of the combined voting power of our outstanding Class A common stock and our outstanding Class B common stock and because Donegal Mutual will vote all of its shares at our 2017 Annual Meeting to approve the determination to submit to our stockholders the approval, on anon-binding advisory basis, of the compensation of our named executive officers will be approved byonce every three years, our stockholders even if all ofwill approve at our 2017 Annual Meeting our proposal to submit to our stockholders other than Donegal Mutual vote againstthe approval, on anon-binding advisory basis, 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.once every three years.

Ratification of the Appointment by our Audit Committee of KPMG LLP to Serve as Our Auditorsour Independent Registered Public Accounting Firm for 20142017

Ratification of the appointment of KPMG LLP by our audit committee of KPMG LLP to serve as our independent registered public accounting firm for our fiscal year ending December 31, 20142017 requires the affirmative vote of the holders 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 a single class, present in person or by proxy and entitled to vote at our 20142017 Annual Meeting. Because Donegal Mutual owns 72.9% of the combined voting power of our outstanding Class A common stock and our outstanding Class B common stock and will vote all of its DGI shares for ratification of the appointment by our audit committee of KPMG LLP to serve as our independent registered public accounting firm for 2014,2017, our stockholders will approve at our 2017 Annual Meeting 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

Our stockholders will consider and vote upon a stockholder proposalLLP to serve as our independent registered public accounting firm for 2017 at our 2014 Annual Meeting, assuming that the proponent of that stockholder proposal or his duly qualified representative properly presents it at our 20142017 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 BrokerNon-Votes

In connection with our 2014 Annual Meeting, we will treat abstentions and broker Brokernon-votes as outstanding shares entitled to vote at our 2014 Annual Meeting. The holders present in person or by proxy of a majority of the aggregate voting power of the outstanding 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 exercise its majority voting power of 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 such brokers or nominees do not have discretionary voting power on the item to be voted upon and that such broker or nominee hasmay not votedvote on the item because the broker or nominee has not received voting instructions from the beneficial owner of those shares and as to which shares the broker or nominee does not have discretionary voting power.shares. Brokernon-votes, if any, will not affect the presence of a quorum at our 20142017 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 20142017 Annual Meeting.

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

At the close of business on March 7, 2014,3, 2017, we had outstanding:

In summary:

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At the close of business on March 7, 2014,3, 2017, Donegal Mutual owned of record and beneficially 7,755,9539,851,025 shares, or 37.2%45.7%, of our outstanding Class A common stock, and 4,235,5394,647,339 shares, or 75.9%83.3%, of our outstanding Class B common stock. Donegal Mutual therefore has the right to cast approximately two-thirdsvotes that constitute 72.9% of the total number of votes that all of our stockholders may castcombined voting power at our 20142017 Annual Meeting on each matter we submit to a vote of our stockholders at our 20142017 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 20142017 Annual Meeting as follows:

As a result, based on the information Donegal Mutual furnished to us as to how Donegal Mutual will castvote its votesshares at our 20142017 Annual Meeting and because the shares Donegal Mutual owns constitute 72.9% of the combined voting power that all of our stockholders may cast at our 2017 Annual Meeting, we anticipate our stockholders will, at our 20142017 Annual Meeting:

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

If the certified list our transfer agent prepared 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 20142017 Annual Meeting and vote in person or by proxy on the items of stockholder business we submit to a vote of our stockholders at our 20142017 Annual Meeting. If you prefer, you may vote your proxy by mail, 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 20132016 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, by telephone or via the Internet. The deadline for stockholders of record to vote at our 20142017 Annual Meeting by telephone or via the Internet is 11:59 p.m., local time, on April 16, 2014.19, 2017. The deadline for our receipt of proxies submitted by mail or by express delivery services for voting at our 20142017 Annual Meeting is 3:00 p.m., local time, on April 16, 2014.19, 2017.

You may vote by proxy by using one of the following three 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 your proxy card lists and then follow the prompts. The telephone number is1-800-690-6903.

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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 mailed to you along with our proxy solicitation materials for our 20142017 Annual Meeting and our 2013 Annual Report.Meeting.

Vote via the Internet – use the Internet 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 numbersnumber your proxy card lists and then create and submit your ballot over the Internet. The website address for voting via the Internet iswww.proxyvote.com. www.proxyvote.com.

If a broker, bank or other fiduciary or representative is the holder of record of your shares, see “How do you vote yourthe DGI shares you own beneficially that are registered in street name?the name of another person?” below.

How do you vote the DGI shares you own beneficially that are registered in street name?the name of another person?

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 7, 2014,3, 2017, which means that if the list of our stockholders of record at the close of business on March 7, 2014 prepared by3, 2017 our independent transfer agent prepared does not include your name but instead the name of the 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 items of stockholder business upon which our stockholders will vote at our 20142017 Annual Meeting or you must obtain a form of proxy from your holder of record that you may then vote as if you were the holder of record. Your broker does not have the discretion to vote your shares on non-routine matters, which includes on:

Your broker, however, does have the discretion to vote your shares on routine matters at our 2017 Annual Meeting. The stockholder ratification of the appointment by our audit committee of KPMG LLP to serve as our independent registered public accounting firm for our fiscal year ending December 31, 2017 is a routine matter as to which your broker may exercise discretionary voting power.

If you are a “beneficial owner” of our Class A common stock or our Class B common stock and desire to attend our 2017 Annual Meeting and vote the stockholder proposal we describe elsewhereshares you beneficially own at our 2017 Annual Meeting in thisperson, you must obtain a proxy statement.from your holder of record that you may vote as if you were the holder of record and not direct your holder of record how to vote. Your holder of record is generally the bank, broker or other fiduciary or representative who holds your shares in its name on your behalf.

How does our board of directors recommend our stockholders vote at our 20142017 Annual Meeting?

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

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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 for:

May you change your vote after you have voted by proxy but before the votecommencement of your proxyvoting at our 20142017 Annual Meeting?

Yes. You may revoke your proxy at any time prior to the time when the proxies our board of directors appointed have completed their collection of ballots during our 20142017 Annual Meeting. If you are a stockholder of record, you may revoke your proxy by timely:

However, if you attend our 20142017 Annual Meeting in person and do not submit a ballot at our 20142017 Annual Meeting, our proxies will vote the proxy you most recently submitted to them in accordance with the instructions you provided on that most recentrecently submitted proxy.

If a bank, broker, nominee, other fiduciary or representative or other person is the holder of record of the shares you own, you will 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 20142017 Annual Meeting or voting your shares, please call Jeffrey D. Miller, our Senior Vice Presidentexecutive vice president and Chief Financial Officer,chief financial officer, at1-800-877-0600 ore-mail Mr. Miller atjeffmiller@donegalgroup.com. jeffmiller@donegalgroup.com.

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CERTAIN BENEFICIAL OWNERS OF OUR CLASS A COMMON STOCK

AND OUR CLASS B COMMON STOCK

Beneficial Owners of 5% or More of DGICAour Class A Common Stock or DGICBour Class B Common Stock

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(NASDAQ symbol DGICA) or 5% or more of the outstanding shares of our Class B common stock (Nasdaq(NASDAQ symbol DGICB), in each case, as of the close of business on March 7, 2014.3, 2017.

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The Beneficial Ownership of our Stock by Ourour Directors and Executive Officers of Our Stock

The following table shows the amount and the percentage of the outstanding shares of our Class A common stock and the amount and the percentage of the outstanding shares of our Class B common stock that each of our directors, each 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 7, 2014.3, 2017. 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 were exercisable as of March 7, 20143, 2017 or that become exercisable within 60 days after March 7, 2014. Ownership3, 2017. The ownership of each director, nominee for director and executive officer is less than 1% unless the table below indicates otherwise.

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The named executive officers listed below hold stock options to purchase shares of our Class A common stock included in the table above as follows:

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 directors, each of our executive officers and any 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 file with the SEC initial reports of their ownership of 10% or more of our Class A common stock andor 10% or more of our Class B common stock as well as reports of subsequent changes in that ownership. Such persons must also furnish us with copies

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of all formsreports they file with the SEC pursuant to Section 16(a). As a practical matter, we seek to assist our executive officers and directors in completing these filings on a timely basis by monitoring such transactions and completing and filing such SEC reports on behalf of such of those persons as requestswho request us to do so.

Based solely upon our review of the Section 16(a) filings our executive officers and directors made with the SEC during 20132016 and written representations we receive annuallyreceived with respect to 2016 from our directors and executive officers, we believe that during 20132016 all of our directors and executive officers filed all required Section 16(a) reports on a timely basis.basis, except that one director, Jack L. Hess, has informed us that he did not timely report his acquisition in 2011 of the right to receive 171 shares of our Class A common stock as a result of the May 6, 2011 merger of Union National Financial Corporation (“UNNF”) with and into DFSC. In that merger, each share of common stock of UNNF automatically became by operation of law the right to receive 0.2134 shares of our Class A common stock and $5.45 in cash. Due to an administrative oversight by the independent exchange agent UNNF utilized in the merger, the 171 shares of our Class A common stock that Mr. Hess became entitled to receive as a result of the May 2011 merger were not issued to him until January 5, 2017. Mr. Hess promptly thereafter reported his acquisition of the 171 shares of our Class A common stock.

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, 125 years later, Donegal Mutual has approximately $383.8 million in total assets and surplus of approximately $204.4 million at December 31, 2013. In addition, Donegal Mutual owns 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, at December 31, 2013, had total assets of approximately $1.4 billion and stockholders’ equity of approximately $400.0 million.

Donegal Mutual and DGI’s insurance subsidiaries conduct business together as the Donegal Insurance Group in 22 21Mid-Atlantic, Midwestern, New England and Southern states. During 2013,2016, A.M. Best Company reported that the Donegal Insurance Group ranked as the 95th86^th largest property and casualty insurance group in the United States based on its 2012 net premiums written.written in 2015. A.M. Best Company has assigned its rating of A (Excellent) to the Donegal Insurance Group. The Donegal Insurance Group has received an A.M. Best rating of A (Excellent). for the last 24 successive years.

The Development of DGIOur Relationship with Donegal Mutual

In themid-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

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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 DGIAtlantic States 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 toexpenses. The underwriting pool homogenizes the reinsurance pool, and the reinsurance pool, acting throughrisk characteristics of business Donegal Mutual then cedes a portionand Atlantic States write directly. Atlantic States receives an allocation of 80% from the pooled business, currently 80%, to our subsidiary, Atlantic States,underwriting pool and Donegal Mutual retainsreceives an allocation of 20%. We do not anticipate any change in the remaining 20%. Since we establishedallocation of the underwriting pool between Donegal Mutual and Atlantic States in 1986, the future. The business Atlantic States derives from the underwriting pool represents a significant percentage of our total consolidated revenues. However, the percentage of our total consolidated revenues we derive from the underwriting pool has gradually decreased as we have acquired other property and casualty insurance companies that do not participate in the underwriting pool.

Donegal Mutual and our insurance subsidiaries have conductedconduct business together as the Donegal Insurance Group, while retaining theireach entity retains its separate legal and corporate existences. Donegal Mutual and Atlantic States share the underwriting results in proportion to their respective participation in the underwriting pool.existence. As the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries share a combined business plan to enhance market penetration and underwriting profitability objectives.profitability. 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 interest in the 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.

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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 results of the business the individual companies write directly will vary. However, the underwriting pool homogenizes the risk characteristics

Certain of all business Donegal Mutual and Atlantic States 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.

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. In addition, the portion of the underwriting 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$13.0 million in dividends to us.us during 2016. These dividends are a major sourceone of the sources of the funds we utilizeutilized to pay quarterly cash dividends to our stockholders. We paid $14.1 million in dividends to our stockholders in 2016, of which Donegal Mutual $6.6received $7.6 million in stockholder dividends during the year ended December 31, 2013.

Our Recapitalization in 2001

We recapitalized effective April 19, 2001. At that time, we effected a one-for-three reverse stock splitbased on its ownership 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 shareand shares of our Class B common stock on the respective record dates for the dividends we paid during 2016.

Our Capital Structure

We have two outstanding classes of common stock, our Class A common stock and our Class B common stock.

Our Class A common stock hasone-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, theThe relative voting power and equity interest of all of the stockholders of DGI at the time of our recapitalization 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 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 ourtwo-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 continues to believe is remote in any event because of Donegal Mutual’s continuing ownership of more than a majority of the voting power of our common stock.

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Every holder of our Class A common stock and every holder of our Class B common stock who owns shares of our Class A common stock or 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 has, since our formation in 1986, held majority voting control of us. For the reasons we discuss in this proxy statement, Donegal Mutualus and intends to retainmaintain that majority voting control for the long-term future because Donegal Mutualfuture. Our board of directors believes that itsDonegal Mutual’s majority voting control of us is in our long-term best interests and the long-term best interests of Donegal Mutual.

The Continuing RelationshipAs a result of a review that occurred in March 2017, both our board of directors and Donegal Mutual’s board of directors reaffirmed their respective belief that the DonegalMutual-DGI structure and the inter-company relationships between Donegal Mutual and DGI and its insurance subsidiaries we describe in this proxy statement continue to be appropriate for the respective businesses and operations of Donegal Mutual and of DGI

and our insurance subsidiaries. Our board of directors remains of the opinionreaffirmed in March 2017 that preservation of the relationship between Donegal Mutual and us and our status as a public company majority-controlled byof which Donegal Mutual owns 72.9% of the combined voting power of our Class A common stock and our Class B common stock is in the best interests of all of the constituencies that we and Donegal Mutual serve, including:

We believe our relationshiprelationships with Donegal Mutual offers us and our insurance subsidiarieswe describe in this proxy statement provide the Donegal Insurance Group with a number of competitive advantages,important business benefits, including the following:

We refer our stockholders to our Form10-K annual report Report for our fiscal year ended December 31, 20132016 for a further discussion ofinformation about our business strategy.strategies and our relationship with Donegal Mutual.

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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

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in order to enhance the long-term, profitabilitycost-effectiveness and operating profits 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 maintainedmaintain a coordinating committee since our formation in 1986. The coordinating committeethat 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 theall transactions between Donegal Mutual and its policyholders, on the one hand, and our insurance subsidiaries, us and us.our stockholders, on the other hand.

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 any 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,PHCA, as amended, orwell as the PHCA. laws of the other states of domicile of our insurance subsidiaries.

The coordinating committee utilizes the following process in considering whether towill only approve a new agreement between Donegal Mutual and us or Donegal Mutual and one or more of our insurance subsidiaries or toa change in an existing agreement between Donegal Mutual and us or Donegal Mutual and 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 existingcontinuing agreement and eachon-going transaction between Donegal Mutual and us or one or more of our insurance subsidiaries, including the various reinsurance agreements between Donegal Mutual and our insurance subsidiaries. The purpose of this annual review is to examine the results of these reinsurance agreements over the immediately preceding year and for the four precedinga period of several years and to determine if the results of the existing agreements between Donegal Mutual and us and our insurance subsidiaries over an extended time period remain fair and equitable to us and our stockholders and fair and equitable to Donegal Mutual and its policyholders or if Donegal Mutual andor if we should mutually agree to certain adjustments. In the case of these agreements, the adjustments typically consist of adjustments to the reinsurance premiums, losses coveredthe level at which the reinsurance attaches and the reinsurance reinstatement premiums designedpremiums. The intent of any changes is 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 20142017 in the ordinary course of 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 asRichard D. Wampler, II are our members of the coordinating committee. See “Proposal 1 – Election of Directors” for certainCertain biographical information about Messrs. Bolinger and Lyons.Wampler appears later in this proxy statement under the caption “Election of Directors.” 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 67,70, has been a director of Donegal Mutual since 2008. Mr. Bixenman retired at the end ofin 2012 as vice president and senior consultant of 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 30,48847,555 shares of our Class A common stock. He owns no shares of our Class B common stock. As director compensation in 2013,2016, Donegal Mutual paid Mr. Bixenman cash fees of $49,500$69,300 and granted him a restricted stock award of 400500 shares of our Class A common stock with a value at the time of issuance in January 20132016 of $5,616.$7,040. Mr. Bixenman also received $500 in cash fees as compensation from Donegal Mutual for eachthe meeting of the coordinating committee he attended as one of Donegal Mutual’s members on the coordinating committee during 2013.2016.

Mr. Hiestand, age 76,79, 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 32,00237,080 shares of our Class A common stock. He owns 157 shares of our Class B common stock. As director compensation in 2013,2016, Donegal Mutual paid Mr. Hiestand cash fees of $47,750$67,400 and granted him a restricted stock award of 400500 shares of our Class A common stock with a value at the time of issuance in January 20132016 of $5,616.$7,040. Mr. Hiestand also received $500 in cash fees as compensation from Donegal Mutual for eachthe meeting of the coordinating committee he attended as one of Donegal Mutual’s members on the coordinating committee during 2013.2016.

Inter-Company Transactions

Donegal Mutual provides facilities, personnel and other services to us and our insurance 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 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. Donegal Mutual’s charges for these services totaled $94.0$122.4 million in 20132016, compared to $78.8$108.5 million in 2012.2015.

We lease office equipment and automobiles to Donegal Mutual and Southern. Donegal Mutual and Southern made total lease payments to us of $850,000 in 2013 under these leases compared to $953,000 in 2012.

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Donegal Mutual and Atlantic States may amend or terminate the pooling agreement, as we describe in an earlier portion of this proxy statement, 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. Our 2013 Annual Report contains additional information describingNeither our board of directors nor Donegal Mutual’s board of directors contemplates any change in the underwriting pool.pooling agreement.

In addition to the pooling agreement, our insurance subsidiaries, in the ordinary course of their businesses, have various reinsurance agreements with Donegal Mutual that renew from year to year.are renewed annually. 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 between the reinsurance premiums Donegal Mutual charges our insurance subsidiaries for the reinsurance and the losses Donegal Mutual incurs under the reinsurance it provides to our insurance subsidiaries over a period of several 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.reinsurers. These reinsurance agreements include:include the following reinsurance agreements:

In January 2014,2017, the coordinating committee met and determined that the proposed terms of these reinsurance agreements for 2017 were fair and equitable to usour insurance subsidiaries 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, withnon-material adjustments, through the next scheduled annual review during the first two months of 2015.2018.

We refer you to noteNote 3 of the notesNotes to our consolidated financial statementsConsolidated Financial Statements we include in our 20132016 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 the size, underwriting profile and surplus capacity of each of our insurance subsidiaries.

Union Community Bank

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

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Because DFSC owns UCB, Donegal Mutual and we, as the two owners of DFSC, andas well as DFSC, areconstitute grandfathered unitary savings and loan holding companies regulated under the Home Owners’ Loan Act, or 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 grandfathered unitary savings and loan holding company without complying with regulatory requirements under either HOLA, if the acquiror is a company, or the Change in Bank 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 isWe are such an entity.

We do not consolidate the financial statements of DFSC and its wholly owned subsidiary, UCB, with our financial statements. We have included the separate consolidated financial statements of DFSC as a schedule to our Form 10-K annual report for the year ended December 31, 2013.

At December 31, 2013,2016, UCB had total assets of $512.8$536.2 million, total deposits of $428.7$451.2 million and total loans of $274.6$349.4 million. UCB had net income of $6.3$2.6 million for the year ended December 31, 2013,2016, compared to net income of $9.8$2.7 million for the year ended December 31, 2012.2015. 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 business with UCB in the ordinary course of business 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 in a building in Lancaster, Pennsylvania from DFSC. Both leases provide for an annual rent based on an independent appraisal each year.

The Risk Management Committee

The Donegal Insurance Group maintains a risk management committee. The risk management committee that consists of 14 officers of Donegal Mutual, seveneight of whom are also 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 Insurance Group transacts and the internal and external resources of the Donegal Insurance Group for assessing and controlling such 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.quarterly.

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

CORPORATE GOVERNANCE

Our board of directors maintains 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

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qualifications for committee membership, procedures for the appointment and removalreplacement of committee members, committee structure and operations and committee reporting to our board of directors. Each of the committees of our board of directors, in its discretion, and at our expense, may retain other advisors, including, but not limited to, legal and financial advisors, to assist the committee in the discharge of the responsibilities of the committee as set forth in its charter. 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. www.donegalgroup.com. The charters of the committees of our board of directors provide our stockholders with a description of the manner in which the committees of our board of directors and its committees operate.

The Composition of Ourour Board of Directors

Ourby-laws provide that the number of members of our board of directors shall not be less than seven nor more than 12. Our board of directors annually fixes the sizenumber of members 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,For 2017, our board of directors has fixed the number of members of our board of directors at 11. Our board of directors consists of three classes, with thethree-year terms of one of the classes expiring at three successive annual meetings and upon each member of the newly elected class of directors taking office.

We constitute a “controlled company” under applicable NASDAQ regulations because Donegal Mutual owns more than a majority of the aggregate voting power of the outstanding shares of our Class A common stock and the outstanding shares of our Class B common stock. As a controlled company, we are exempt from a number of NASDAQ corporate governance requirements, including the NASDAQ 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 whose respective membersmemberships satisfy the requirements of the PHCA.

Pursuant to the PHCA, the committees of our board of directors must 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, all meetings of the committees of our board of directors on which they serve and all meetings of our stockholders. We further expect our directors to devote the time necessary to fulfill their responsibilities as directors. During 2013,2016, each of our directors

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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 served. All of the members of our board of directors attended our 20132016 annual meeting of stockholders. Each of the committees

The Committees of our boardBoard 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.Directors

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,Each of the committees of our board of directors reviews its charter annually.

Our board of directors also maintains a special committee that we jointly maintain a coordinating committee. We refer you to “The Relationship of Donegal Mutual and DGI – The Coordinating Committee” beginning on page 11 ofdiscuss elsewhere in this proxy statement for information as to the responsibilities of the coordinating committee and the identity of its members.statement.

The following table shows the number of meetings each committee of our board of directors, other than the special committee which did not meet during 2016, held in 20132016 and the attendance of the members of those committees at the meetings of the committees on which they served. Mr. Berlucchi, Mr. Burke and Mrs. Gilmartin and Mr. Moore did not serve as a member of any of the committees of our board of directors during 2013.2016.

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The Executive Committee

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

The responsibilities of the executive committee include:

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The Audit Committee

Members: Messrs. Bolinger, Hess, Lyons,Huber, Mahan and Wampler (Chairperson)(Chairman). Each member of the 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.Each of Messrs. Hess, Huber and Wampler who is a retired certified public accountant, and Mr. Hess, who is a certified public accountant in active practice, serve as theand each constitutes a designated financial expert membersmember of theour audit committee.

The responsibilities of the audit committee include:

The Nominating Committee

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

The responsibilities of the nominating committee include:

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The Compensation Committee

Members: Messrs. Glatfelter, Hess Lyons (Chairperson)(Chairman), Kraft, Moore and Wampler. Our compensation committee and the compensation committee of Donegal Mutual meet jointly from time to time. The members of the Donegal

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Mutual compensation committee, as of the date of this proxy statement, are Scott A.Messrs. Berlucchi (Chairperson)(Chairman), Philip H. Glatfelter, II, Jack L.Michael K. Callahan, Hess and R. Richard Sherbahn.Kraft. 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 senior employees.

The responsibilities of our compensation committee include:

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

The Coordinating Committee

We refer you to “The Relationship of Donegal Mutual and DGI – The Coordinating Committee” for information as to the responsibilities of the coordinating committee and the identity of its members.

The Special Committee

Members: Bolinger, Huber, Mahan (Chairman), Moore and Wampler. None of the members of the special committee serves as a director of Donegal Mutual. The special committee operates under a charter our board of directors established, and, from time to time, reviews stockholder proposals and evaluates other matters from the perspective of our stockholders other than Donegal Mutual. The special committee did not meet during 2016.

The charter of the special committee provides for the following principal responsibilities of the special committee:

Compensation Committee Interlocks and Insider Participation

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

Related Person Transactions

We have a written related person policy that governs theour audit committee’s review and approval or ratification of transactions between us, on the one hand, and a related person, on the other hand. The definition of “related person” under applicable SEC regulations includes our directors, our executive officers, directorsholders of 5% or more of the outstanding shares of our Class A common stock, holders of 5% or more of the outstanding shares

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of our Class B common stock and our 10% or greater stockholders.each of the immediate family members of each of those persons. SEC rules and regulations require that we disclose in our proxy statements specified information reporting related person transactions that involve in excess of a specified amount$120,000 in our annual proxy statements and certain other filings we submit to the SEC. This

Our policy applies, in our case, to all transactions with related parties with the exception of those transactions between Donegal Mutual and us or one or more of our insurance subsidiaries thatbecause those transactions require the prior approval of our coordinating committee. See “The Relationship of Donegal Mutual and DGI -– The Coordinating Committee,” beginning on page 11 ofCommittee” elsewhere in this proxy statement.

Our related person policy establishes procedures for our audit committee’s prior review of proposed transactions between us and a related person because we recognize that related person transactions can suggest a heightened risk of a potential conflict of interest and cancould create the appearance of potential impropriety. Applicable SEC regulations define a “related person” as including our directors, our executive officers, a 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 the audit committee review all proposed related person transactions first receiveand determine whether or not to approve the approval of ourrelated person transaction. Our audit committee must first approve a related person transaction before we can agree to the related person transaction. In addition, if the related-partyrelated person transaction continues in effect for more than one year, our audit committee must annually approve the continuation of that transaction.

Donald H. Nikolaus, our chairman and chief executive officerof the board and a member of our board of directors and who is also 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 1972 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 its services. WeThe Donegal Insurance Group paid Nikolaus & Hohenadel legal fees of $449,911$458,685 in 20122015 and $466,393$430,745 in 2013.

Patricia A. Gilmartin, one of our directors and a director of Donegal Mutual, was an employee of Associated Donegal Insurance Brokers from 1969 to February 2013. That firm has no affiliation with us except that it receives insurance commissions from our insurance subsidiaries and Donegal Mutual in the ordinary course of business and in accordance with their standard commission schedules and agency contracts.2016.

Frederick W. Dreher, a director of Donegal Mutual since December 1996, has beenwas a partner in the law firm of Duane Morris LLP since 1970.from 1970 to 2016 and is now of counsel to that firm. Since 1986, Duane Morris LLP has represented us, our insurance subsidiaries, Donegal Mutual, DFSC and UCB in certain legal matters. We pay Duane Morris LLP its customary fees for its services. The Donegal Insurance Group and DFSC paid Duane Morris LLP legal fees of $1,405,781$893,985 in 20122015 and $1,567,837$699,330 in 2013.2016.

Donegal Mutual and we conduct routine banking transactions with UCB in the ordinary course of our business with UCB and on terms and conditions no more favorable to Donegal Mutual or DGIus 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 and our Internal Audit Department

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 directors, 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.

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EXECUTIVE COMPENSATION DISCUSSION AND ANALYSIS

Executive Summary

20132016 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 nettotal revenues and our net income for the year ended December 31, 20132016 and the priceprices of our Class A common stock and our Class B common stock at December 31, 20132016 compared to the same data at December 31, 2012.2015.