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December 08, 2010 at 16:06 PM EST
A.M. Best Removes From Under Review and Affirms Ratings of Michigan Insurance Company

A.M. Best Co. has removed from under review with negative implications and affirmed the financial strength rating of A (Excellent) and issuer credit rating of “a” of Michigan Insurance Company (MIC) (Grand Rapids, MI). The outlook assigned to both ratings is stable.

The rating actions follow the recent acquisition of MIC by Donegal Group Inc. (Donegal) [NASDAQ: DGICA and DGICB]. The ratings are reflective of MIC’s strong capitalization, historically positive earnings and the implicit and explicit support provided by Donegal. This includes board control, management oversight, system improvements and capital support through a surplus note and intercompany reinsurance protection provided by Donegal Mutual Insurance Company, the lead company in the Donegal Insurance Group.

These favorable rating aspects are partially offset by MIC’s concentration of risk in Michigan, which exposes it to weather-related losses, regional economic conditions and changes in regulatory and legislative actions. The outlook on the ratings is stable as the capitalization and historical earnings trend of MIC are expected to continue with the added support of Donegal.

Additionally, the acquisition of MIC has no impact on the ratings of Donegal Group Inc. or the Donegal Insurance Group. Although the acquisition was funded by drawing down on existing lines of credit, Donegal Group Inc.’s debt-to-capital and interest coverage ratios remain within an acceptable range for its current rating.

The principal methodology used in determining these ratings is Best’s Credit Rating Methodology -- Global Life and Non-Life Insurance Edition, which provides a comprehensive explanation of A.M. Best’s rating process and highlights the different rating criteria employed. Additional key criteria utilized include: “Risk Management and the Rating Process for Insurance Companies”; “Understanding BCAR for Property/Casualty Insurers”; “Rating Members of Insurance Groups”; and “A.M. Best’s Ratings & the Treatment of Debt.” Methodologies can be found at www.ambest.com/ratings/methodology.

Founded in 1899, A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com.

Copyright © 2010 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.

Contacts:

A.M. Best
Charles M. Huber, 908-439-2200, ext. 5122
Senior Financial Analyst
charles.huber@ambest.com
or
Joseph Burtone, 908-439-2200, ext. 5125
Assistant Vice President
joseph.burtone@ambest.com
or
Rachelle Morrow, 908-439-2200, ext. 5378
Senior Manager, Public Relations
rachelle.morrow@ambest.com
or
Jim Peavy, 908-439-2200, ext. 5644
Assistant Vice President, Public Relations
james.peavy@ambest.com
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