AMENDED AND RESTATED TAX SHARING AGREEMENT

EXHIBIT 10.1

AMENDED AND RESTATED TAX SHARING AGREEMENT

     THIS AMENDED AND RESTATED TAX SHARING AGREEMENT (this “Agreement”) dated as of October 19, 2006, among Donegal Group Inc., a Delaware corporation (“DGI”), Atlantic States Insurance Company, a Pennsylvania stock casualty insurance company (“Atlantic”), Southern Insurance Company of Virginia, a Virginia stock casualty insurance company (“Southern”), Le Mars Insurance Company, an Iowa stock casualty insurance company (“Le Mars”), The Peninsula Insurance Company, a Maryland stock casualty insurance company (“Peninsula”) and Peninsula Indemnity Company, a Maryland stock casualty insurance company (“PIC”). Atlantic, Southern, Le Mars, Peninsula and PIC are each referred to herein as the “Subsidiary.”

     WHEREAS, each Subsidiary is a member of an affiliated group (the “Group”) within the meaning of section 1504(a) of the Internal Revenue Code of 1986, as amended (the “Code”) of which DGI is the common parent corporation and each Subsidiary has been a party to a separate tax-sharing agreement with DGI;

     WHEREAS, DGI will continue to include each Subsidiary in its consolidated federal income tax returns in accordance with Code sections 1501 and 1502 and wishes to enter into this Agreement so that DGI and each Subsidiary are all parties to the same tax-sharing agreement;

     WHEREAS, the parties hereto deem it equitable that, with respect to each taxable year for which a consolidated return is filed on behalf of the Group, each Subsidiary shall pay DGI an amount equal to its Separate Company Tax Liability (as hereinafter defined); and

     WHEREAS, the parties wish to provide for the treatment of various other matters that may arise as a result of the filing of consolidated returns, and the parties wish to set forth in this Agreement the agreement between DGI and each Subsidiary with respect to the allocation and settlement of the federal, state and local taxes of the Group with respect to each taxable period ending on or after the date hereof during which such Subsidiary is included in the affiliated group of which DGI is the common parent (the “Affiliation Periods”).

     NOW, THEREFORE, in consideration of the mutual covenants contained herein and intending to be legally bound hereby, the parties agree as follows:

     1.  Filing of Returns . With respect to each Affiliation Period, DGI shall file, and each Subsidiary shall agree to join in the filing of, consolidated federal income tax returns on behalf of the Group. Each Subsidiary shall execute and file such consents, elections and other

documents as DGI reasonably requests with respect to the filing of the Group’s consolidated federal income tax returns, and shall, consistently with Section 4, timely provide to DGI such information as may be necessary for the filing of such returns or for the determination of amounts due under this Agreement. Each Subsidiary acknowledges and agrees that the rights conferred upon DGI in connection with the filing of the Group’s returns include, without limitation, the right to reasonably determine the allocation of income or loss of DGI and any other subsidiary between the last Affiliation Period and the next taxable period. Each Subsidiary shall file all federal, state, local and foreign tax returns with respect to all periods for which such Subsidiary does not join DGI in filing a consolidated return and the Subsidiary shall be responsible for the payment of all taxes in connection therewith. The Subsidiary shall file any such tax returns in a manner consistent with the manner in which DGI filed its returns for Affiliation Periods except as required by law or to the extent any inconsistency would not adversely affect the tax returns of the Group.

     2.  Tax Payments .

          (a) Due Dates . Except as otherwise provided in this Agreement: (i) each Subsidiary will pay to DGI the amount due DGI, as determined under Section 2(b), no later than the due date for the filing of any federal income tax return of the Group that includes such Subsidiary, and (ii) DGI will pay to each Subsidiary the amount due such Subsidiary, as determined under Section 2(c), no later than the due date for the filing of any federal income tax return of the Group that includes such Subsidiary; provided, however, that no later than each estimated federal income tax payment date of the Group for which the Group actually incurs a federal income tax liability with respect to an Affiliation Period, each Subsidiary shall pay to DGI the greater of (i) the minimum amount required to be paid to avoid the imposition of any penalties or additions to tax under the Code, determined on the same basis as the total amount due for an Affiliation Period under Section 2(b) or (ii) one-fourth of the amount estimated to be payable by such Subsidiary for such taxable year under Section 2(b). The amount of any overpayment or underpayment pursuant to this Section 2(a) shall be credited against, or added to, as the case may be, the amount otherwise required to be paid for the period within which the amount of such overpayment or underpayment first becomes reasonably ascertainable. The settlements may be satisfied by check, wire transfer or through intercompany accounts as the parties may mutually agree.

          (b) Amount Due to DGI . Each Subsidiary shall pay DGI in the time and manner described in Section 2(a) an amount equal to any Separate Company Tax Liability of that Subsidiary. The “Separate Company Tax Liability” for any Affiliation Period shall be the amount, if any, of the federal income tax liability, including, without limitation, liability for any penalty, fine, additions to tax, interest, minimum tax, alternative minimum tax and other items applicable to that Subsidiary in connection with the determination of the Subsidiary’s tax liability, which the Subsidiary would have incurred had it filed a separate federal income tax return for such Affiliation Period, computed in the manner prescribed in Income Tax

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Regulation section 1.1552-1(a)(2)(ii), except that no carryforward or carryback of losses or credits shall be allowed.

          The Separate Company Tax Liability for a Subsidiary shall be determined by DGI, with the cooperation and assistance of the Subsidiary, in a manner consistent with (i) general tax accounting principles, (ii) the Code and regulations thereunder and (iii) so long as a reasonable legal basis exists therefor, prior custom and practice. In addition, transactions or items between DGI and a Subsidiary that are deferred under the federal income tax return shall also be deferred for purposes of this Agreement until such time as they are restored or otherwise triggered into income under the Code or regulations.

          (c) Amount due to a Subsidiary . In the event a Subsidiary does not have Separate Company Tax Liability for an Affiliation Period, but instead either incurs net losses or credits for such period, DGI shall pay the Subsidiary in the time and manner prescribed in Section 2(a) the amount by which the Group’s federal income tax liability for such period is actually reduced by reason of the actual use of such losses or credits attributable to the Subsidiary in the Group’s federal income tax return.

          In the event a Subsidiary incurs any tax losses or tax credits that, as permitted under the Code and the regulations, are carried back or forward to one or more Affiliation Periods, DGI shall pay that Subsidiary an amount equal to the amount by which the Group’s federal income tax liability is actually reduced by reason of the actual use of such carried over losses or credits in the Group’s federal income tax return. Any payment from DGI to the Subsidiary required on account of such carryover shall be paid within 15 days of the date the benefit of the carryover is realized by DGI by reason of the receipt of a refund or credit of taxes.

          (d) Paying Agent . DGI agrees to make all required payments to the Internal Revenue Service (“IRS”) of the consolidated federal income tax liability, if any, of the Group.

     3.  Adjustments to Tax Liability .

          (a) Adjustment-Related Payments . If the consolidated federal income tax liability of the Group or any of its members is adjusted for any taxable period for any reason other than a loss or credit carryback to the extent already provided for in Section 2(c), whether by means of an amended return, judicial decision, claim for refund or tax audit by the IRS, the Separate Company Tax Liability or the amount of tax benefits realized by the Group by reason of the use of a Subsidiary’s losses or credit shall be recomputed to give effect to such adjustment, and the amount of any payments due under Section 2 shall be appropriately adjusted. Any additional payment between DGI and a Subsidiary required by reason of such recomputed Separate Company Tax Liability or Group tax refund or