By order of our board of directors,

March 16, 201521, 2016

Marietta, Pennsylvania

Important Notice Regarding the Availability of Our Proxy Materials for

Our 20152016 Annual Meeting We Will Hold on April 16, 201521, 2016

This documentmailing includes our notice of our 2016 Annual Meeting, our proxy statement for our 20152016 Annual Meeting and our 2014 Annual Report to stockholders as well as our notice of our 2015 Annual Meeting.Report. You may also view each of these documents on the Internet atwww.proxyvote.com. No information on our website other than the notice of our 2016 Annual Meeting, this proxy statement for our 20152016 Annual Meeting and our 20142015 Annual Report to stockholders constitutes a part of our proxy solicitation materials for our 20152016 Annual Meeting or part of our 20142015 Annual Report to our stockholders.Report.

DONEGAL GROUP INC.

PROXY STATEMENT

Introduction

This proxy statement contains information relating to our 20152016 Annual Meeting. We will hold our 20152016 Annual Meeting on Thursday, April 16, 2015,21, 2016, at 10:00 a.m., local time, at the Heritage Hotel Lancaster, 500 Centerville Road, Lancaster, Pennsylvania 17601.

On March 16, 2015,21, 2016, we mailed to our stockholders of record at the close of business on March 2, 20154, 2016 this proxy statement, and an accompanying form of proxy card and a postage-paid return envelope as well asfor the convenience of our 2014 Annual Report to stockholders (our “2014 Annual Report”). Our mailing also included a postage-prepaid envelope for your convenience in returning yourtheir completed and signed proxy card to our transfer agent, unless you prefera stockholder prefers to vote in person, by telephone or via the Internet.Internet, as well as our 2015 Annual Report. We ask stockholders to return their completed proxy cards to us promptly whether or not they expect to attend our 20152016 Annual Meeting in person.

We will pay the costs of preparing and mailing our proxy materials to our stockholders for our 20152016 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 20152016 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.

Summary of Our 20142015 Performance

For 2014,2015, our total revenues increased 7.2%8.5%, and our net income and net income per diluted Class A share decreased 44.8%increased 44.4% and 46.1%40.0%, respectively, compared to 2013.2014. The following table depicts our total revenues, net income, net income per diluted Class A share and net income per Class B share for the three years ended December 31, 2015, 2014 2013 and 2012.2013. For further information, we refer you to the financial statements included in our 20142015 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:

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CONTENTS

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Unless we otherwise expressly indicate, all of the financial information we include or incorporate by reference in this proxy statement for our 20152016 Annual Meeting relates to our 20142015 fiscal year. Our 20142015 fiscal year began on January 1, 20142015 and ended on December 31, 2014.2015.

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OUR 20152016 ANNUAL MEETING

In accordance with this proxy statement, our board of directors solicits proxies from our stockholders for use in connection with our 20152016 Annual Meeting and any adjournment or postponement of our 20152016 Annual Meeting. We will hold our 20152016 Annual Meeting at 10:00 a.m., local time, on April 16, 201521, 2016 at the Heritage Hotel Lancaster, 500 Centerville Road, Lancaster, Pennsylvania 17601.

What is the agenda for our 20152016 Annual Meeting?

At our 20152016 Annual Meeting, our stockholders will consider and act upon the following fourtwo items of stockholder business:

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

Our advance notice By-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 BC director at our 20152016 Annual Meeting or to propose any other item of stockholder business for stockholder consideration at our 20152016 Annual Meeting.

Our advance notice By-laws establish a date by which a stockholder must submit a stockholder proposal with respect to our next forthcoming annual meeting of stockholders. That date in general is 90 days prior to the first anniversary of the mailing date of our proxy solicitation for our prior year’s annual meeting of stockholders. 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 our next forthcoming annual meeting of stockholders. For our 20152016 Annual Meeting, that date was December 17, 2014.16, 2015. For our 20162017 annual meeting of stockholders, that date is December 16, 2015.21, 2016. The purpose of our advance notice By-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 our annual meetings of stockholders.

No stockholder has nominated a candidate for election as a Class BC director at our 20152016 Annual Meeting or proposed the transaction of any other item of stockholder business at our 20152016 Annual Meeting. Accordingly, no item of stockholder business other than the fourtwo items of stockholder business we describe in our notice of our 20152016 Annual Meeting, as well as in this proxy statement, may properly come before our 20152016 Annual Meeting or any adjournment or postponement of our 20152016 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 20152016 Annual Meeting, to a vote of our stockholders at our 20152016 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 our By-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.

What is the quorum requirement for the conduct of business at our 20152016 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

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stock as of the record date for our 20152016 Annual Meeting voting together as a single class constitutes a quorum at our 20152016 Annual Meeting. Because Donegal Mutual owns approximately 65%73.8% of the aggregate voting power of our Class A common stock and our Class B common stock outstanding on the record date and because all of the 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 20152016 Annual Meeting, the presence in person of the shares Donegal Mutual owns at our 20152016 Annual Meeting will constitute the presence of a quorum at our 20152016 Annual Meeting. Because a quorum will be present at our 20152016 Annual Meeting, our stockholders will have the legal power and authority to conduct the items of stockholder business at our 20152016 Annual Meeting that we describe in our notice of our 20152016 Annual Meeting and in this proxy statement.

What is the order of business at our 20152016 Annual Meeting?

Our By-laws and applicable provisions of the DGCL govern the organization, conduct of business at and the adjournment of our 20152016 Annual Meeting. Our board of directors has designated Donald H. Nikolaus,Kevin G. Burke, our chairman of the boardpresident and president,chief executive officer, as the presiding officer of our 20152016 Annual Meeting. The presiding officerMr. Burke will call our 20152016 Annual Meeting to order and will conduct the business of our 20152016 Annual Meeting, including voting upon the fourtwo items of stockholder business upon which our stockholders will vote at our 20152016 Annual Meeting. No other item of stockholder business may properly come before our 20152016 Annual Meeting. TheMr. Burke, as the presiding officer of our 20152016 Annual Meeting, will determine, in his discretion, the order of the items of stockholder business we will conduct at our 20152016 Annual Meeting and the procedural manner in which we will conduct the business of our 20152016 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 of our 2015 Annual Meetingannual meeting to order and the determination of a quorum by the presiding officer of our Annual Meeting.annual meeting. We currently intend to follow a substantially similar procedure at our 20152016 Annual Meeting. After our stockholders have voted on the fourtwo items of stockholder business we describe in this proxy statement, and the inspectors of election our board of directors has appointed have tallied the voting on those fourtwo items of stockholder business, Donald H. Nikolaus, our chairman of the board, Kevin G. Burke, our executive vice president chief operating officer and acting chief executive officer, and Jeffrey D. Miller, our executive vice president and chief financial officer, will then discuss our results of operations for 20142015 compared to 20132014 and our outlook for 2015.2016. After those remarks, the inspectors of election for our 2016 Annual Meeting will announce the results of the voting on the fourtwo items of stockholder business. Then Mr.Messrs. Nikolaus, our chairman of the boardBurke and president, and Mr. Burke, our executive vice president, chief operating officer and acting chief executive officer,Miller will, in their discretion, recognize stockholders who wish to ask pertinent questions or make comments as Messrs. Nikolaus, Burke and BurkeMiller deem appropriate under then prevailing circumstances.

Who is entitled to notice of, and who may vote at, our 20152016 Annual Meeting?

Our board of directors established the close of business on March 2, 20154, 2016 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 20152016 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 20152016 Annual Meeting.

Each share of our Class A common stock held of record for our 20152016 Annual Meeting has the right to cast one-tenth of a vote per Class A share for each nominee for election as a Class BC director at our 20152016 Annual Meeting and each of the other items of stockholder business we submit to a vote of our stockholders at our 20152016 Annual Meeting.

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Each share of our Class B common stock held of record for our 20152016 Annual Meeting has the right to cast one vote per Class B share for each nominee for election as a Class BC director at our 20152016 Annual Meeting and each of the other items of stockholder business we submit to a vote of our stockholders at our 20152016 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 20152016 Annual Meeting in person. Even if you currently plan to attend our 20152016 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 the DGI shares you own that are registered in your name?” By voting in one of those ways, we can then recognize your votes even if you later do not, or cannot for any reason, attend our 20152016 Annual Meeting and vote in person.

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 2, 2015,4, 2016, the record date for our 20152016 Annual Meeting. If your name appears on that certified list of stockholders Computershare prepared for our use in connection with our 20152016 Annual Meeting, you are a stockholder of record entitled to vote in person or by proxy at our 20152016 Annual Meeting. For example, you are a stockholder of record if you received this proxy statement and the related materials for our 20152016 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.

Our By-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 20152016 Annual Meeting, to examine, at our principal executive offices in Marietta, Pennsylvania, an alphabetical list of the holders of record for our 20152016 Annual Meeting of our Class A common stock and an alphabetical list of the holders of record for our 20152016 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 within this ten-day period is not proper or not legally relevant to the items of stockholder business we will conduct at our 20152016 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, broker or 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.

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Which of the items of stockholder business we will conduct at our 20152016 Annual Meeting do we consider routine, and which do we consider non-routine?

We will transact fourtwo items of stockholder business at our 20152016 Annual Meeting. WeUnder applicable regulations, we consider these items routine or non-routinethe election of three Class C directors as we indicate in“non-routine” and the table below:ratification of the appointment of KPMG LLP to serve as our auditors for our 2016 fiscal year to be “routine.”

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Under applicable SEC rules, a broker or other non-beneficial record owner maydoes not have discretion to 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 necessary to approve the items of stockholder business on whichthat our stockholders will consider and vote upon at our 20152016 Annual Meeting?

Election of Our Class BC Directors

The fourthree nominees our board of directors has nominated for election as Class BC directors are the only nominees eligible for election as Class BC directors at our 20152016 Annual Meeting and any adjournment or postponement of our 20152016 Annual Meeting. Our certificate of 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 determining the election of 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 20152016 Annual Meeting, our stockholders will elect as Class BC directors the fourthree nominees for election as Class BC directors who receive the highest number of stockholder votes at our 20152016 Annual Meeting. The fourthree persons elected as Class BC directors 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 the nominees for election as Class BC 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 BC director 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 C directors as present at our 20152016 Annual Meeting for the purposes of determining whether a quorum is present at our 20152016 Annual Meeting. Because Donegal Mutual holds 73.8% of the total voting power of our outstanding common stock and will vote all of its controlling interest in the outstanding DGI shares for the election of the fourthree nominees for Class BC director we name in this proxy statement, and the Donegal Mutual-owned shares constitute a majority of the votes entitled to be cast at our 2015 Annual Meeting, those Class BC nominees will be elected to serve as Class BC directors for a term of three years and until the election of their respective successors and their respective successors take office.

Approval of Our 2015 Equity Incentive Plan for Employees

Approval of our 2015 equity incentive plan for employees requires the affirmative vote of the holders of record of a majority of the 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 2015 Annual Meeting. Because Donegal Mutual will vote all of its DGI shares for approval of our 2015 equity incentive plan for employees and the Donegal Mutual-owned shares constitute a majority of the votes entitled to be cast at our 2015 Annual Meeting, our stockholders will approve our 2015 equity incentive plan for employees.

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Approval of Our 2015 Equity Incentive Plan for Directors

Approval of our 2015 equity incentive plan for directors requires the affirmative vote of the holders of record of a majority of the 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 2015 Annual Meeting. Because Donegal Mutual will vote all of its DGI shares for approval of our 2015 equity incentive plan for directors and the Donegal Mutual-owned shares constitute a majority of the votes entitled to be cast at our 2015 Annual Meeting, our stockholders will approve our 2015 equity incentive plan for directors.

Ratification of the Appointment by Our Audit Committee of KPMG LLP to Serve as Our Independent Registered Public Accounting Firm for 20152016

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, 20152016 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 20152016 Annual Meeting. Because Donegal Mutual holds 73.8% of the total voting power of our outstanding 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 2015 and the Donegal Mutual-owned shares constitute a majority of the votes entitled to be cast at our 2015 Annual Meeting,2016, the ratification of the appointment by our audit committee of KPMG LLP to serve as our independent registered public accounting firm for 2016 will receive the requisite stockholder approval.be approved at our 2016 Annual Meeting.

Quorum and Broker Non-Votes

In connection with our 20152016 Annual Meeting, we will treat abstentions and broker non-votes as outstanding shares entitled to vote at our 20152016 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 entitled to vote at our 2016 Annual Meeting and the outstanding shares of our Class B common stock entitled to vote at our 20152016 Annual Meeting will constitute a quorum at our 20152016 Annual Meeting. Thus, a quorum will be present at our 20152016 Annual Meeting because of the presence at our 20152016 Annual Meeting of Donegal Mutual and because Donegal Mutual holds, and will exercise, the majorityits 73.8% voting power of all of the outstanding shares of our Class A common stock and the outstanding shares of our Class B common stock.

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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. Broker non-votes, if any, will not affect the presence of a quorum at our 20152016 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 20152016 Annual Meeting.

What voting rights do our stockholders have?

At the close of business on March 2, 2015,4, 2016, we had outstanding:

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In summary:

At the close of business on March 2, 2015,4, 2016, Donegal Mutual owned of record and beneficially 7,755,9539,851,025 shares, or 36.0%47.9%, of our outstanding Class A common stock, and 4,247,0394,647,039 shares, or 76.2%83.3%, of our outstanding Class B common stock. Donegal Mutual therefore has the right to cast approximately two-thirds73.8% of the total number of votes that all of our stockholders may cast at our 20152016 Annual Meeting on each matter we submit to a vote of our stockholders at our 20152016 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 20152016 Annual Meeting as follows:

As a result, based on the information Donegal Mutual furnished to us as to how Donegal Mutual will cast its votes at our 20152016 Annual Meeting and because thosethe shares Donegal Mutual votes constitute a majority73.8% of the total votes entitled to be cast at our 20152016 Annual Meeting, we anticipate our stockholders will, at our 20152016 Annual Meeting:

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

If the certified list our transfer agent, Computershare, 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 20152016 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 20152016 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 20142015 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 20152016 Annual Meeting by telephone or via the Internet is 11:59 p.m., local time, on April 15, 2015.20, 2016. The deadline for our receipt of proxies submitted by mail or by express delivery services for voting at our 20152016 Annual Meeting is 3:00 p.m., local time, on April 15, 2015.20, 2016.

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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 is 1-800-690-6903.

Vote by mail – mark, sign and date the proxy card we have mailed to you and return it in the postage-prepaid envelope we mailed to you along with our proxy solicitation materials for our 20152016 Annual Meeting and our 2014 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.

If a broker, bank or other fiduciary or representative is the holder of record of your shares, see “How do you vote the 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 2, 2015,4, 2016, which means that our list of our stockholders of record at the close of business on March 2, 20154, 2016 prepared by our independent transfer agent does not include your name but instead the name of the bank, broker or other fiduciary or representative who is the holder of 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 20152016 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 at our 2015 Annual Meeting. Those matters are the election of fourthree Class B directors, the approval of our 2015 equity incentive plan for employees and the approval of our 2015 equity incentive plan forC directors. Your broker, however, does have the discretion to vote your shares on routine matters at our 20152016 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, 20152016 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 20152016 Annual Meeting orand vote your beneficially owned shares at our 20152016 Annual Meeting in person, you must obtain a proxy 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 your broker or bank who holds the shares in its name for you.on your behalf.

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How does our board of directors recommend our stockholders vote at our 20152016 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 the election of the fourthree nominees for Class BC directors we name in this proxy statement for the approval of our 2015 equity incentive plan for employees, for the approval of our 2015 equity incentive plan for directors and for the 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, 2015.2016.

May you change your vote after you have voted by proxy but before the commencement of voting at our 20152016 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 20152016 Annual Meeting. If you are a stockholder of record, you may revoke your proxy by timely:

However, if you attend our 20152016 Annual Meeting in person and do not submit a ballot at our 20152016 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 20152016 Annual Meeting or voting your shares, please call Jeffrey D. Miller, our executive vice president and 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

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 2, 2015.4, 2016.

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The Beneficial Ownership of Our Stock by Our 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 2, 2015.4, 2016. 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 2, 20154, 2016 or that become exercisable within 60 days after March 2, 2015.4, 2016. The ownership of each director, nominee for director or executive officer is less than 1% unless the table immediately below indicates otherwise.

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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 and our Class B common stock as well as reports of subsequent changes in that ownership. Such persons must also furnish us with copies 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 who 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 20142015 and written representations we receive annuallyreceived with respect to 2015 from our directors and executive officers, we believe that during 20142015 all of our directors and executive officers filed all required Section 16(a) reports on a timely basis.

Under the caption “Certain Beneficial Owners of Our Class A Common Stock and Our Class B Common Stock” in this proxy statement, we disclose that Gregory M. Shepard, an individual who is not affiliated with the Company, owns more than 10% of the outstanding shares of our Class A common stock. As such, Section 16(a) of the Exchange Act requires that Mr. Shepard file reports of changes in his beneficial ownership of our Class A common stock as well as our Class B common stock within two business days after any change in his beneficial ownership of our Class A common stock or our Class B common stock.

Mr. Shepard filed a change in beneficial ownership report with the SEC on December 29, 2014. Mr. Shepard’s December 29, 2014 report disclosed that:

Based upon Mr. Shepard’s December 29, 2014 change in beneficial ownership report, we have determined, based on the advice of our outside counsel, that:

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, 126 years later, Donegal Mutual had approximately $393.7 million in total assets and surplus of approximately $204.4 million at December 31, 2014. In addition, Donegal Mutual owns 36.0% of the outstanding shares of our Class A common stock and 76.2% of the outstanding shares of our Class B common stock. DGI, at December 31, 2014, had total assets of approximately $1.5 billion and stockholders’ equity of approximately $416.1 million.

Donegal Mutual and DGI’s insurance subsidiaries conduct business together as the Donegal Insurance Group in 21 Mid-Atlantic, Midwestern, New England and Southern states. During 2014,2015, A.M. Best Company reported that the Donegal Insurance Group ranked as the 9894^th largest property and casualty insurance group in the United States based on its net premiums written in 2013.2014. 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 23 successive years.

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The Development of DGIDGI’s Relationships with Donegal Mutual

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 DGI 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 Atlantic 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 through Donegal Mutual, then cedes a portionrisk characteristics of the pooled business currently 80%, to Atlantic States, and Donegal Mutual retains the remaining 20%. Donegal Mutual and Atlantic States sharewrite directly. Atlantic States has received an allocation of 80% from the underwriting resultspool since March 1, 2008. We do not anticipate any change in proportion to their respective participationthe allocation of the underwriting pool between Donegal Mutual and Atlantic States in 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 a number of other property and casualty insurance companies that do not participate in the underwriting pool.

Since weDonegal Mutual established Atlantic States in 1986, Donegal Mutual and our insurance subsidiaries have conducted business together as the Donegal Insurance Group, while retaining theireach entity has retained its separate legal and corporate existences.existence. As the Donegal Insurance Group, Donegal Mutual and our insurance subsidiaries

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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 long-term ownership of a majority interest in the combined voting power of our Class A common stock and of our Class B common stock fosters our ability to:

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 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, the percentage of the total revenue we derive from the underwriting pool has gradually decreased over the past few years as we have acquired a number of other property and casualty insurance companies 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

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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.

The board of directors of Donegal Mutual and our board of directors review annually our structure and relationships. The most recent such review occurred in February 2015. 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 2015 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.

As our Form 10-K Report for the year ended December 31, 2014 reports,2015 indicates, certain of our insurance subsidiaries pay dividends to us. During the year ended December 31, 2014,2015, our insurance subsidiaries paid a total of $11.5$3.9 million in dividends to us. These dividends are a major sourceone of the sources of the funds we utilize to pay quarterly cash dividends to our stockholders. We paid $13.6$14.5 million in dividends to our stockholders in 2014,2015, of which Donegal Mutual received $6.0$6.3 million based on its holdings of our Class A common stock and our Class B common stock on the respective record dates for our payments ofthe dividends we paid during the year ended December 31, 2014.2015.

Our Recapitalization in 2001Capital Structure

We recapitalized effectivein April 19, 2001. At that time, we effected2001 to create a one-for-three reverse stock split of our common stock and renamed it Class B common stock and issuedtwo-class voting structure. The two shares ofclasses are our Class A common stock as a stock dividend for each post-reverse stock split share ofand 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, 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.

We effected our recapitalization because our board of directors believed in 2001, and continues 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 two-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.

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,

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Donegal Mutualus and intends to retainmaintain that majority voting control of us 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 2016, both our board of directors and Donegal Mutual’s board of directors reaffirmed their respective belief that the Donegal Mutual-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 is of the opinionreaffirmed in March 2016 that preservation of the relationship between Donegal Mutual and us and our status as a public company majority-controlled byof which Donegal Mutual owns 73.8% 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:

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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 Form 10-K Report for our fiscal year ended December 31, 20142015 for a further discussion ofinformation about our business strategy.strategies and our relationships with Donegal Mutual.

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, 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:

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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 theall transactions between Donegal Mutual and its policyholders, on the one hand, and our insurance subsidiaries and us and 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, as amended, or the PHCA. PHCA, as well as the other states of domicile of our insurance subsidiaries.

The coordinating committee utilizes the following standards 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:

The coordinating committee also meets annually during the first two months of each year to review each continuing agreement and each on-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

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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, the level at which the reinsurance attaches and the reinsurance reinstatement premiums and are 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 20152016 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 Richard D. Wampler, II are our members of the coordinating committee as of the date of this proxy statement. Our board of directors appointed Mr. Wampler as a member of the coordinating committee in January 2015 to fill a vacancy created by the resignation of John J. Lyons in December 2014. See “Proposal 1 – Election of Class B Directors” for certainCertain biographical information about Messrs. Bolinger and Wampler.Wampler appears later

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in this proxy statement under the caption “Election of Class C 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 68,69, has been a director of Donegal Mutual since 2008. Mr. Bixenman retired at the end of 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 37,722 shares of our Class A common stock. He owns no shares of our Class B common stock. As director compensation in 2014,2015, Donegal Mutual paid Mr. Bixenman cash fees of $62,000$69,500 and granted him a restricted stock award of 400 shares of Class A common stock with a value at the time of issuance in January 20142015 of $6,360.$6,392. Mr. Bixenman received $500 in cash fees as compensation from Donegal Mutual for each meeting of the coordinating committee attended as one of Donegal Mutual’s members on the coordinating committee during 2014.2015.

Mr. Hiestand, age 77,78, 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 39,247 shares of our Class A common stock. He owns 157 shares of our Class B common stock. As director compensation in 2014,2015, Donegal Mutual paid Mr. Hiestand cash fees of $60,050$62,800 and granted him a restricted stock award of 400 shares of Class A common stock with a value at the time of issuance in January 20142015 of $6,360.$6,392. Mr. Hiestand received $500 in cash fees as compensation from Donegal Mutual for each meeting of the coordinating committee attended as one of Donegal Mutual’s members on the coordinating committee during 2014.2015.

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 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 $108.5 million in 2015, compared to $98.6 million in 2014 compared to $94.0 million in 2013.2014.

As we discuss in an earlier portion of this proxy statement, 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 2014 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.

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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 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:

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In January 2015,2016, the coordinating committee met and determined that the proposed terms of these reinsurance agreements for 20152016 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, with non-material adjustments, through the next scheduled annual review during the first two months of 2016.2017.

We refer you to Note 3 of the Notes to Our Consolidated Financial Statements we include in our 20142015 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 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, has been a Pennsylvania state-chartered savings bank since 2013.bank.

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.

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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 is 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

At December 31, 2015, UCB had total assets of DFSC as a schedule to our Form 10-K Report$507.8 million, total deposits of $400.3 million and total loans of $310.8 million. UCB had net income of $2.7 million for the year ended December 31, 2014.2015, compared

At December 31, 2014, UCB had total assets of $506.4 million, total deposits of $403.5 million and total loans of $301.9 million. UCB had

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to net income of $3.1 million for the year ended December 31, 2014, compared to net income of $6.3 million for the year ended December 31, 2013.2014. 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, eight 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.

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

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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 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. 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 Our Board of Directors

Our By-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

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limits, and may increase or decrease the size of our board of directors from time to time. Currently,For 2016, 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 the three-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 2014,2015, 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 served. All of the members of our board of directors attended our 20142015 annual meeting of stockholders, with the exceptionstockholders.

The Committees of Mr. Nikolaus for medical reasons. EachOur Board 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, with the exception of the special committee, reviews its charter annually. Each of the committees of our board of directors in its discretion, and at our expense, may retain counsel and other advisors, including but not limited to, legal and financial advisors, to assist the committee the discharge of the responsibilities of the committee as set forth in its charter.Directors

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

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

Our board of directors also maintains a special committee that we discuss beginning on page 2220 of this proxy statement.

The following table shows the number of meetings each committee of our board of directors, other than the special committee, held in 20142015 and the attendance of the members of those committees at the meetings of the committees on which they served. Mr. Berlucchi and Mrs. Gilmartin did not serve as a member of any of the committees of our board of directors during 2014. The table excludes the attendance data with respect to a director who resigned in December 2014.2015.

The Executive Committee

Members: Messrs. Glatfelter (Chairman), Kraft and Nikolaus. The executive committee has the authority to take all actions 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:

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The Audit Committee

Members: Messrs. Bolinger, Hess, Huber, (since January 30, 2015), Mahan and Wampler (Chairman). Mr. Lyons served as a member of this committee during 2014 until his resignation as a director on December 12, 2014. 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. Each of Messrs. Hess, Huber and Wampler is a certified public accountant and each constitutes a designated financial expert member of our audit committee.

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The responsibilities of the audit committee include:

The Nominating Committee

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

The responsibilities of the nominating committee include:

The Compensation Committee

Members: Messrs. Glatfelter, Hess (Chairman), Kraft (since January 30, 2015) and Wampler. Mr. Lyons served as a member of this committee during 2014 until his resignation as a director on December 12, 2014. Our compensation committee and the compensation committee of Donegal Mutual meet jointly from time to time.

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The members of the Donegal Mutual compensation committee, as of the date of this proxy statement, are Scott A.Messrs. Berlucchi (Chairman), Philip H. Glatfelter, II, Jack L. Hess and Kevin M. Kraft, Sr.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.

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The Coordinating Committee

We refer you to “The Relationship of Donegal Mutual and DGI – The Coordinating Committee” beginning on page 15 of this proxy statement for information as to the responsibilities of the coordinating committee and the identity of its members.

The Special Committee

Members: Bolinger, Huber, (since January 30, 2015)Mahan (Chairman), Mahan, Moore and Wampler.

The special committee of our board of directors is comprised of our independent directors who do not also serve as directors 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 held foursix meetings in 2014.2015. All of the members of the special committee attended at least 75% of those meetings.

The charter of the special committee provides for the following principal responsibilities: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, approval or ratification of transactions between us, on the one hand, and our executive officers, directors, director nominees and our 10%5% or greater stockholders, on the

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other hand. SEC rules and regulations require that we disclose in our annual proxy statements specified information reporting related person transactions in excess of a specified amount$120,000 and certain other filings we submit to the SEC.

This 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 that require the prior approval of our coordinating committee. See “The Relationship of Donegal Mutual and DGI – The Coordinating Committee” beginning on page 15 of this proxy statement.Committee.”

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

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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 ourtransaction. Our audit committee must first approve the transaction before we can agree to the transaction.transaction with the related party. In addition, if the related-party 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 of the board and president 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 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. We paid Nikolaus & Hohenadel legal fees of $466,393 in 2013 and $394,879 in 2014.

Patricia A. Gilmartin, one of our directors2014 and a director of Donegal Mutual, was an employee of Associated Donegal Insurance Brokers from 1969 to February 2013 when Ms. Gilmartin retired from that firm. That firm has no affiliation with us except that it receives insurance commissions from our insurance subsidiaries and Donegal Mutual$458,685 in the ordinary course of business and in accordance with their standard commission schedules and agency contracts.2015.

Frederick W. Dreher, a director of Donegal Mutual since December 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, 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 $1,567,837 in 2013 and $681,486 in 2014.2014 and $893,985 in 2015.

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 and us for our respective costs in providing certain administrative services to UCB.

On December 18, 2015, we and Donegal Mutual entered into a Stock Purchase and Standstill Agreement (the “Purchase Agreement”) with Gregory M. Shepard who, as of that date, was the holder of 5% or more of the outstanding shares of our Class A common stock and the holder of 5% or more of the outstanding shares of our Class B common stock. Under the terms of the Purchase Agreement, on December 22, 2015, we and Donegal Mutual purchased a total of 3,675,000 shares of our Class A common stock from Mr. Shepard for a price of $16.50 per share, a total of $60,637,500, and 400,000 shares of our Class B common stock from Mr. Shepard for a price of $23.50 per share, a total of $9,400,000. Of the total shares purchased, we purchased 2,000,000 shares of our Class A common stock, and Donegal Mutual purchased 1,675,000 shares of our Class A common stock and the 400,000 shares of our Class B common stock. As part of the funding of the purchase of these shares from Mr. Shepard, we borrowed $33,000,000 under our existing line of credit with M&T Bank, and Donegal Mutual borrowed $17,000,000 under its existing line of credit with M&T Bank. The Purchase Agreement contains a number of typical “standstill” provisions pursuant to which Mr. Shepard and any affiliate of Mr. Shepard agree not to take a number of “control-seeking” actions with respect to us for a period of 25 years from the date of the Purchase Agreement.

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 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.

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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

20142015 Performance Review

The following table depicts our nettotal revenues and our net income for the year ended December 31, 20142015 and the price of our Class A common stock and our Class B common stock at December 31, 20142015 compared to the same data at December 31, 2013.2014.

Stock Option Grants

On December 18, 2014, our board of directors17, 2015, we granted stock options to a number of employees of Donegal Mutual and our employees,affiliates, including our named executive officers, and we also granted stock options to our directors.directors and the directors of Donegal Mutual and our affiliates. We granted each director,of our directors, other than Mr. Nikolaus, an option to purchase 8,000 shares of our Class A common stock exercisable for tenfive years that vests in three equal annual cumulative installments commencing on July 1, 2015.2016. Each stock option is exercisable at a price of $15.80$13.64 per share, which price exceededrepresented the closing price of our Class A common stock on the day before the date of grant by a modest amount:grant:

Our Compensation Process

In assessing the performance of our named executive officers in light of the objectives our board of directors establishes, the compensation committee reviews specific achievements associated with each named executive officer’s attainment of those objectives, the degree of difficulty in achieving those objectives and the extent to which significant unforeseen obstacles or unfavorable circumstances adversely affected their performance. As part of its oversight of the compensation of our named executive officers, the compensation committee recommended increases in the base salaries of our named executive officers for 2015 that averaged 9.5 %, which our compensation committee considered reasonable based on publicly available information from 15 insurance companies we informally consider our peer group.

Summary of the 20142015 Compensation of Our Named Executive Officers

The compensation of our named executive officers in 20142015 consisted of three principal elements:

We paid aggregate incentive bonuses of $380,000$1.4 million to our named executive officers in respect of 20142015 compared to aggregate incentive bonuses of $1.3 million$380,000 in respect of 2013.2014. The increase in bonuses paid to our named executive officers in 2015 reflects the fact that our results of operations for 2015 were substantially more

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favorable than our results of operations for 2014. Our named executive officers also participate in our 401(k) plan to which we make contributions on a formula basis. Our named executive officers also receive the health and other insurance benefits we make available to all of our full-time employees.

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20142015 Total Direct Compensation of Our Named Executive Officers

We believe our 20142015 compensation for our officers, including our named executive officers, is fair and reasonable. We implemented our compensation programs to balance risk and reward in our overall business strategy. The description of ourOur compensation emphasizes that we tieties a significant percentage of the total compensation of our officers, including our named executive officers, directly to our objective of attaining an underwriting profit each year. Accordingly, we base our annual incentive bonuscompensation awards on our underwriting results. As a result, our named executive

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officers evaluate carefully the risks we write because a reduction in our underwriting profitability would adversely affect the annual incentive bonus compensation of our named executive officers. Finally, our incentive compensation programs for our named executive officers do not guarantee compensation to our named executive officers.

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We believe that the elements of our compensation program as we describe them in this proxy statement establish that we have the appropriate mix of risk vs. benefit to align effectively the interests of our named executive officers with the interests of our stockholders, and that our incentive compensation programs do contribute to the enhancement of the long-term value of an investment in DGI. For example, our named executive officers only realize a gain from the stock options we grant to them as compensation if the price of our Class A common stock increases above the exercise price of the options subsequently to the date of grant of the option and net of the income taxes our named executive officers would incur.incur upon exercise.

Director Compensation

Our objectives for our director compensation are to attract qualified individuals to serve on our board of directors and the board of directors of Donegal Mutual and to align the interests of our directors with the interests of our stockholders. Our board of directors determines the form and amount of director compensation after its review of recommendations by the compensation committee of our board of directors. Our compensation committee reviews our director compensation program annually to confirm that the compensation of the members of our board of directors and the board of directors of Donegal Mutual remains competitive and comparable to the compensation practices of our competitors and to make recommendations to our board of directors that theour compensation committee believes are appropriate.

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Under our equity incentive plan for directors, each of our directors and each director of Donegal Mutual who is not also one of our directors receives an annual restricted stock award of 400500 shares of our Class A common stock. We grant the award to each director as of the first business day of each year, provided the

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director served as a member of our board of directors or as a member of the board of directors of Donegal Mutual during any portion of the preceding year. Each of our directors and each of the directors of Donegal Mutual is also eligible to receive non-qualified options to purchase shares of our Class A common stock in an amount our board of directors determines on the date of grant.

On December 18, 2014,17, 2015, we granted each of our directors, and each director of Donegal Mutual who was not also a member of our board of directors, a non-qualified stock option to purchase 8,000 shares of our Class A common stock at an exercise price of $15.80$13.64 per share. Each option is exercisable until December 18, 2024.17, 2020. Donegal Mutual reimburses us for the cost of the restricted stock awards we grant to those directors of Donegal Mutual who do not also serve as members of our board of directors.

The following table sets forth a summary of the compensation we paid to our non-officer directors during 2014 who were serving as directors at December 31, 2014. A director who resigned in December 2014 and is therefore not listed in the table received cash fees of $67,350 and a stock award of $6,360 during 2014.2015.

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The following table summarizes the outstanding equity awards our directors held at December 31, 2014,2015, excluding the awards our chairman of the board, and president, Mr. Nikolaus holds, which we report elsewhere in this proxy statement: