Donegal Group has signed an agreement pursuant to which it will acquire all of the outstanding stock of Michigan Insurance Company, a majority-owned stock subsidiary of West Bend Mutual Insurance Company.

Michigan Insurance Company currently participates in a quota share reinsurance agreement with West Bend, whereby West Bend assumes 75% of Michigan Insurance Company’s business.

Michigan Insurance Company will enter into a 50% quota share agreement with third-party reinsurers and a 25% quota share reinsurance agreement with Donegal Mutual Insurance Company to replace the current quota share reinsurance agreement with West Bend as of the closing date of the acquisition.

Donegal Mutual Insurance Company will include its assumed business from Michigan Insurance Company in its pooling agreement with Atlantic States Insurance Company. Over time, Donegal Group Inc and Donegal Mutual Insurance Company will have the ability to reduce the level of external quota share reinsurance and thereby provide additional premium growth for the Donegal Insurance Group.

The acquisition is subject to a number of conditions, including the approval of the Insurance department of the State of Michigan. Donegal Group expects to complete the transaction in the fourth quarter of 2010.

The purchase price will be calculated based on the GAAP book value of Michigan Insurance Company as of the closing date of the transaction. Donegal Group estimates that the consideration payable to the shareholders of Michigan Insurance Company will be approximately $39m.

Donald Nikolaus, president and CEO of Donegal Group, said: We are excited about this opportunity to expand our Midwestern operations into Michigan by acquiring a company with a very capable management team and an excellent independent agency distribution system.

”We believe this acquisition will not only enhance our overall business and long-term profitability but also provide for significant future growth as we decide over time to retain a larger percentage of the company’s premiums net of reinsurance.