We are a financial services holding company incorporated under the laws of the Cayman Islands. Our core business is the underwriting of commercial automobile insurance policies, focusing on the “light” commercial automobile sector, which is carried out through our insurance subsidiaries. This sector includes taxi cabs, non-emergency para-transit, limousine, livery and business auto. Our goal is to always be the preferred specialty commercial transportation insurer in any geographic areas where our value proposition delivers benefit to all stakeholders. We are licensed to write property and casualty, or P&C, insurance in 49 states plus the District of Columbia in the United States. The insurance subsidiaries distribute their products through a network of independent retail agents, and actively wrote insurance in 40 states and the District of Columbia during 2014.
The Gateway truck and workers' compensation programs were put into run-off during 2012. The truck program had little earned premium during 2012 and the workers' compensation program is 100% reinsured retrospectively and prospectively to an unrelated third party.
Overall, Atlas generated net income of $17.7 million for the year ended December 31, 2014. After taking the dilutive impact of the convertible preferred shares and stock options, diluted earnings per common share in the year ended December 31, 2014 was $1.56. This compares to net income of $6.2 million or diluted earnings per common share of $0.74 for the year ended December 31, 2013.
Acquisition costs represent commissions and taxes incurred on net premium earned. Acquisition costs were $14.0 million in the year ended December 31, 2014 or 14.3% of net premium earned, as compared to 14.5% in the year ended December 31, 2013. We expect acquisition cost ratios to remain relatively consistent with the 2014 ratio going forward.
Upon the transaction forming Atlas on December 31, 2010, a yearly limitation as required by U.S. tax law Section 382 that applies to changes in ownership on the future utilization of Atlas’ net operating loss carryforwards was calculated. The insurance subsidiaries’ prior parent retained those tax assets previously attributed to the insurance subsidiaries which could not be utilized by Atlas as a result of this limitation. As a result, Atlas’ ability to recognize future tax benefits associated with a portion of its deferred tax assets generated during prior years have been permanently limited to the amount determined under U.S. tax law
Atlas established a valuation allowance of approximately $0 and $9.4 million for its gross future deferred tax assets at December 31, 2014 and at December 31, 2013, respectively. Based on Atlas’ expectations of future taxable income, its ability to change its investment strategy, as well as reversing gross future tax liabilities, management believes it is more likely than not that Atlas will fully realize the net future tax assets. The Company, therefore, has released its remaining valuation allowance at December 31, 2014.
Cash provided by operations during the year ended December 31, 2014 was primarily as a result of net income. Cash provided by financing activities during the year ended December 31, 2014 was the result of the capital raise in the second quarter of 2014. Cash used by investing activities during the year ended December 31, 2014 was higher relative to the year ended December 31, 2013 due to an increase the purchase of invested assets.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statement of financial position of Atlas Financial Holdings, Inc. as of December 31, 2014, and the related consolidated statements of income and comprehensive income, shareholders’ equity, and cash flows for the year ended December 31, 2014 and our report dated March 9, 2015 expressed an unqualified opinion thereon.
The remaining outstanding preferred shares are not entitled to vote and are beneficially owned or controlled by the former owner of Camelot Services, Inc. as of December 31, 2014. Preferred shareholders are entitled to dividends on a cumulative basis whether or not declared by the Board of Directors at the rate of $0.045 per share per year (4.5%) and may be paid in cash or in additional preferred shares at the option of Atlas. In liquidation, dissolution or winding-up of Atlas, preferred shareholders receive the greater of $1.00 per share plus all declared and unpaid dividends or the amount it would receive in liquidation if the preferred shares had been converted to restricted voting common shares or ordinary voting common shares immediately prior to liquidation. Preferred shares are convertible into ordinary voting shares at the option of the holder at any date after the fifth year of issuance at the rate of 0.1270 ordinary voting common shares for each preferred share. The conversion rate is subject to change if the number of ordinary voting common shares or restricted voting common shares changes as a result of proportional share events, e.g. share consolidation. The preferred shares are redeemable at the option of Atlas at a price of $1.00 per share plus accrued and unpaid dividends commencing at two years from January 1, 2013 (the issuance date of the preferred shares).