Donegal Insurance Reports 3Q to Reflect Hurricane, Securities Events

October 9, 2008

Marietta, Pennsylvania-based Donegal Group Inc. reported that its net income for the third quarter of 2008 will reflect realized investment losses related to its equity securities and claim activity resulting from Hurricane Ike in Ohio and western Pennsylvania on September 14.

As the remnants of Hurricane Ike passed through Ohio and western Pennsylvania on September 14, sustained hurricane-force winds caused widespread property damage, with the event ranking as one of Ohio’s costliest natural disasters. The Donegal Insurance Group said it incurred a significant number of claims from this storm event with the direct impact projected to exceed $3.0 million. The impact to the company’s third quarter results will be approximately $1.0 million on a pre-tax basis by its reinsurance arrangements.

The company incurred pre-tax realized investment losses of approximately $1.4 million upon the sale of investments during the third quarter, primarily the result of the company’s decision to reduce significantly its holdings of equity securities. The company expects to incur pre-tax other-than-temporary impairment and mark-to-market write-downs of approximately $1.5 million as of Sept. 30, 2008, related to its remaining equity investments, which represented approximately two percent of its investment portfolio. The company sold its preferred equity holdings in Fannie Mae and Freddie Mac during the third quarter and did not own any common stock of those entities. The company did not and does not currently own any fixed income or equity securities issued by AIG, Bear Stearns, Lehman Brothers, Wachovia Bank or Washington Mutual.

“Our historically conservative investment strategy has limited Donegal Group’s exposure to credit-impacted securities and the unprecedented financial market volatility. We are continuing to follow a prudent investment strategy designed to minimize market risk, increase liquidity and protect our position of financial strength in these turbulent times in the financial markets,” said Donald H. Nikolaus, president and chief executive officer of Donegal Group Inc.

Donegal Group Inc. is an insurance holding company whose insurance subsidiaries offer personal and commercial property and casualty lines of insurance in five Mid-Atlantic states (Delaware, Maryland, New Hampshire, New York and Pennsylvania), eight Southeastern states (Alabama, Georgia, Louisiana, North Carolina, South Carolina, Tennessee, Virginia and West Virginia) and five Midwestern states (Iowa, Nebraska, Ohio, Oklahoma and South Dakota).

The company plans to release its quarterly financial results on Oct. 22, 2008

Source: Donegal

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