Australia's biggest general insurance group has seen its annual profit drop by almost a quarter, after natural disaster costs weighed on its bottom line.

Insurance Australia Group posted a $1.02 billion statutory net profit for 2025/26, down 24.8 per cent from $1.36 billion a year earlier.

The slip was primarily impacted by increased natural perils, particularly a $71 million hit from the Victorian bushfires in January, which burned more than 400,00 hectares and destroyed 900 buildings, including at least 330 homes.

IAG finished the financial year $114 million above its net peril allowance, compared to $195 million below it in 2025, recording net peril costs of $157.9 million, up nearly $500 million on the year before.

The figure was further impacted by its takeover of RACQ in September, which had been dealing with claims related to Queensland's severe storms before coming under IAG's reinsurance arrangements.

"Across the whole business, we actively responded to 65 weather events in Australia and 44 in New Zealand," chief executive Nick Hawkins told an earnings briefing on Thursday.

"We paid more than 12 billion in claims to support our customers and their communities to recover."

Mr Hawkins noted it had been a year of transformation and assured investors it was positioned for growth.

The group's underlying insurance profit improved on the prior year, up 2.3 per cent to $1.58 billion, while its gross written premium grew 7.1 per cent to $18.41 billion.

Meanwhile, IAG's boss touted the use of artificial intelligence to drive efficiency and improve customer experience.

"More than 60 per cent of our people are regular users of AI; we have more than 600 activators who publish more than 90 AI agents to improve workflows in areas like customer service, operations," Mr Hawkins said.

AI was also being used in its corporate functions and more than 2000 employees were using it to deal with claims, fraud, and services, "delivering significant benefits to our claims costs that we are reinvesting for growth."

Investors appeared to be underwhelmed by the earnings results, sending IAG's share price more than six per cent lower to $7.72 in early trade.

IAG announced a final dividend of 20 cents per share, taking shareholders' full-year payout to 32 cents per share, but opted not to provide guidance for profits or dividends for the 2027 financial year.

"We've invested heavily," Mr Hawkins said.

"Technology platforms are really starting to deliver; we're getting some productivity efficiency, we're getting great customer metrics in our retail businesses."