Good morning, and welcome to the investor presentation of Skagi hf for the first quarter 2021. First, to go through the highlights of the quarter. It was a good quarter with a return on equity in this three months, 11.2%. Investment income ISK 2.5 billion, and with a return on investment of 5.8%, driven by the listed equity 17.6%. The investment portfolio has increased and is now ISK 42 billion. Compared to the same quarter 2020, we see a turnover in earnings of ISK 4 billion, and the profit in this quarter, ISK 1.9 billion. We have a clear strategy for the future, and we think ahead and invest in the future. Last quarter, we introduced the driving indicator, [Non-English content], which is known in English as Pay as You Drive or Pay How You Drive.
At the time we published it was the most popular app in Iceland at that time.
We now set a focus on life and critical illness insurance, and we are changing the buying process of those as the next digital project. It's good to be in a company with the courage to challenge the existing insurance world and change how insurance works, and we certainly are doing that. The highlights for the quarter, the premium ISK 5.5 billion. The profit, as said earlier, ISK 1.9 billion. Combined ratio, seasonal effects there, 108%. Return on investment, 5.8%. Return on equity in this three months, 11.2%, and the solvency ratio strong, 145%. In this income statement, you see the turnarounds, where the total income increased by 50%. The claims incurred decreased by 20%, and we also see a turnaround in the technical interest rates and exchange rate charge of technical provision compared to the same period last year.
Given the profit for the period, ISK 1.9 billion, compared to almost ISK 2 billion loss last year. Looking at the premium, we see a small increase in non-life part, 3.9% increase in the life insurance part. As mentioned earlier, the discontinued business, which is the closure of the foreign reinsurance business we have talked about earlier, has almost a zero premium according to our plan, compared to ISK 60 million premium last year. It's also worth to notice the development of the premium, and we see the decrease in the motor business, which is more or less due to the car rental business in the travel industry or tourism. Of course, this quarter, compared to the same quarter 2020, where the COVID effect had not started, we see a clear effect on that on the premium, compared to the first quarter 2020.
Looking at the development of claims, we see the total claims decrease over the period, and it is worth notice on the claims ratio picture on the bottom left to have a quick view on the development of the quarter 2020 and now 2021. As we discussed and showed in our presentation for the year 2020, we saw the effect in the first quarter 2020 to be affected by the strengthening of the reserves and the negative run-off. We saw an effect in quarter two in 2020, more or less due to the COVID effect on the foreign reinsurers or our discontinued business. The third quarter was more or less business as usual, but in the fourth quarter, as we stated in the investor presentation for the year, was affected by a revised methodology on how the best estimate is calculated.
It's good to see that the first quarter 2021, you can see it's more or less stabilized, which is according to our plan. We see the increase in claims provision on the upper right picture, going from ISK 17.6 billion at the year end 2019, to a stabilized level in ISK 20.5 billion-ISK 20.7 billion now. The development of the claims ratio we see on the bottom right picture. We have two claims over ISK 50 million in this period, affecting the claims ratio by 4.3%. The weather in Iceland was good in this quarter compared to the similar quarters the last years. The underlying claims ratio for 2020 is 80.7%. Run-offs in this quarter is on a satisfactory level, 0.8. The discontinued business affect the claims ratio by 2.4%. Looking at the operation, we see the combined ratio 12 months rolling.
Of course, as I explained last year, we saw an increase in the combined ratio due to the working on the best estimate and claims reserves we did last year. We, according to our plan, are seeing that 12 months rolling combined ratio going down according to our plans and expectation. Looking at the operating expense, we see it on a level which we expected. It is worth notice that in Iceland, the salary index has increased quite dramatically. Over 12 months, it's calculated up to 11%, but it worth notice that compared to the first quarter 2020, we have 5% fewer employees. The salary has increased not 11%, but approximately 1.7%. Of course, due to the release of Ökuvísir, we put a lot effort in the marketing side.
All in all, our expectation for the year regarding the expenses, to be on a similar ISK as it was last year, that holds. Looking at the balance sheet, it's the seasonal effects we see here. We see the technical provision increase, and also the account receivable, that is due to seasonal effects, and is expected, as known, to be lower in the coming months. Well, it's worth notice that we have changed how we put our forecast for the business. We have set a forecast as amount at the year-end. Now we have changed it, and we are focused on the insurance part and make a forecast on that. We do not set out a forecast for our investment part. As a part of that, we have increased information on our investment.
I would like Arnar, Head of Investment, to come up and go through that in more details. The floor is yours, Arnar.
Thank you, Helgi. I will start off by talking about the income and return on the first quarter. It was a strong quarter for the company, with ISK 2.5 billion in investment income on the back of really strong fourth quarter of last year. The income was mainly driven by the listed equity part of the portfolio, 17.6% return, which is quite strong in absolute, but also in relative terms compared to the benchmark. The benchmark was up around 10%. The fixed income side was also strong. We saw a rise in all classes, mainly munis. We saw a strong return there compared to a negative income from the government bonds. We have a positive effect on that, and also strong returns on the other bonds, mainly corporate bonds, domestic and foreign. All in all, a strong results for the listed part of the portfolio.
Other equities were affected by increases in valuation. I can mention that Kóre Pharma, Kerecis, and Controlant, as well as Lánið invest, which we sold during the quarter. Asset allocation, the main changes there, we see a rise in the listed equity part, which is mainly due to price increases within the class. We were decreasing somewhat the other bonds, increasing government bonds and munis, but you have to take a fact also that we paid out dividend during the quarter, and we were in buyback. All in all, paying to shareholders roughly ISK 2 billion . The return in the quarter, 5.8%, which is really strong, especially if you compare it to Q1 in 2020 when we were seeing the first effect of COVID, and the quarter was down by half a percent. As Helgi mentioned, we have plans to give more detail about the portfolio.
Here we see the investment assets which holds ISK 42 billion all in all. We split it into fixed income and equities. The fixed income part is ISK 26 billion and the equity part is ISK 16 billion. The duration of the fixed income portfolio is 3.1 years, and the inflation indexation of the domestic bonds is 52%. The main story of the quarter, we were decreasing the duration of the portfolio, and we were increasing the inflation indexation a little bit to hedge the portfolio against increased inflation. You can see that in the 10 largest holdings that the two largest fixed income holdings are inflation-indexed bonds. On the equity side, it is split up into listed equities and other equities. The 10 largest equity holdings you can see on the right-hand side of the slide. The main changes there, we see Marel, a new company on the list.
What we are also doing now is we are giving more light on the other equity part of the portfolio. Other equities are unlisted equities and also private equity funds. You can see on the left-hand side, the five largest holdings we have within the unlisted part. There you can see Kóre Pharma and also amounts of each asset, Miðborg, Hvatning, Kerecis, and Controlant. With this, we would like to shed more light on the portfolio for investors for themselves to calculate the changes in the markets and the effect it has on the company. The last slide I wanted to go over is, we mentioned this before, our focus is very much on return on equity and large part of that is the equity ratio and the capital structure of the company.
The company set out in Q2 in 2018 to manage the capital structure and decrease the equity ratio. We were at 35% at that point, but I'm happy to say we're down to 28.5% currently. Our target is 25%-28%. Within this period, we've paid ISK 8 billion to shareholders. Asset allocation, as you can see, from 2017 and 2020, we were decreasing our ownership in equities and increasing fixed income. We saw opportunities in the listed equity space, and we increased our shareholdings last year. As you can see at the end of Q1, the portfolio split up roughly 61% in fixed income, 39% in equities. This has resulted in good returns on the investment and for shareholders. As you can see, the return on the portfolio was 14% last year and 5.8% in first quarter.
Lastly, I would like to emphasize what Helgi has also mentioned, that the investment portfolio is ISK 42 billion and has never been this large before. We also show the amount we hold in equities and fixed income. With this, we would like to emphasize that we have room within the company to pay out to shareholders, and we can manage the market risk with, for example, decreasing equity holdings and increasing fixed income holdings. With that, I would like to give it back to Helgi. Thank you.
Thank you, Arnar. Coming to the solvency part. Solvency ratio is strong, 1.45 after the paid dividend and the buyback, which was in the first quarter. The market risk is increased in this period and more or less due to the increase of the equity portfolio, but also due to the symmetric adjustment. As Arnar mentioned, there is room and space to continue our buybacks, and glad to say that yesterday the board decided to apply for buyback of ISK 500 million, which is according to our plan for the year. Looking at the shareholders list, 56% pension funds, and we see on the upper left picture the payments to shareholder. This year we mentioned there the dividend by ISK 1.6 billion and buyback of ISK 500 million.
In addition to that, we expect to see at the end of the second quarter the ISK 500 million buyback, which was accepted in the board to apply to the authorities to start when the answer comes from the authorities. Well, as I also mentioned earlier, we have changed how we set out our expectation for the year. We have until now looked at the bottom line for the whole total business, but the business is volatile, and we have decided to change the way we look at the outlook for the year. We now focus on the insurance part. I set an outlook in that to be 97%-99% combined ratio. As I mentioned earlier, and Arnar talked about also, we are excited to set out more detailed information about our investment portfolio.
That is more in line with the way to expect the profit for the year to calculate the investment part. We set the outlook for the year on the combined ratio. It's of course worth mention that our goal and target for the combined ratio is 95%, and the return on equity, the target is at least 50%. Looking ahead, on the investment side, if you look at our investment portfolio, you can see that the second quarter has a good start. We have applied for the UN PRI. First Icelandic insurance company, proud of that. We have increased the information on our portfolio. As I mentioned earlier, the board decided yesterday to continue share buy, to apply for this buyback of ISK 500 million.
On the operation part, we have put an emphasis on the strategy management, and we have a clear purpose, values, future vision, and it is not only a triangle, but we use it in our management and how we approach project and prioritize them. The area of focus we have set there, and that is the way we believe we should work on and focus on to get where we are heading for our future vision. Well, there is a change in the management team. Valgeir is leaving after three very good years, and we thank him a lot. We are having a new, Birkir, with us, which we look very much forward. Also, it's worth mentioning that we're changing the arrangement of the monthly information. We have decided to stop giving the monthly information on the combined ratio and the investment returns.
That has proven to be giving more uncertainty than not. We are therefore aiming on having more information and discussion on our quarterly investor presentation. We steam ahead in our digital development with a clear goal, a clear agenda, changing how the insurance work, and with the aim of decreasing claims, and not only for the company and our customers, but also for the society as whole. With that, I would like to thank you for the time and hope you have a good day. Thank you