The property and casualty insurance industry is suffering from an unwelcome surprise in its loss portfolio, as areas once perceived to be at low risk for catastrophes are generating costly cat losses, says a Guy Carpenter report.

In its report, “Cold Spots Heating Up: The Impact of Insured Catastrophe Losses in New Growth Markets,” Guy Carpenter says that as insurance penetration has increased in developing countries, the distribution of catastrophe losses is shifting as well.

From 2002 to 2008, 77 percent of catastrophe-insured losses were dominated by the United States. Within the past three years—the period 2009 to 2011—Asia (including Japan) has taken up slightly more of the losses—35 percent versus 33 percent for the United States. During the 2002 to 2008 period, Asia accounted for only 9 percent of catastrophe losses.

“As rapid economic growth continues to center around emerging markets and insurance penetration rises in these economies, [reinsurers and insurers] will need to be prepared to handle the expensive cold-spot losses that are occurring in non-peak zones,” says David Flandro, managing director and global head of business intelligence for Guy Carpenter in a statement. “As [reinsurers and insurers] look for opportunities on the frontiers of developing markets, we see an immediate need to plan and manage risk exposures in order to ensure profitable growth in these regions.”

The report says that “expensive cold-spot losses have highlighted carriers’ limited understanding of natural catastrophes in non-peak zones and the difficulty of adequately pricing business and monitoring exposure growth without appropriate risk modeling tools.”

Part of insurers’ problems, says Guy Carpenter, is that the developing nations lack catastrophe models, not only for property damage, but also for business-interruption losses and supply chain disruption. Flood models are also a concern.

“The lack of flood models in emerging markets undoubtedly needs to be addressed if [reinsurers and insurers] are to control their risk exposures,” the report says, adding that the prospect of more losses is leading to calls for modelers to fill the void.

Last year witnessed the two most damaging earthquakes in recent times. Devastating floods in Thailand and Australia also pushed 2011 to the second most expensive insurance-loss year at $110 billion.

With these losses in mind, Guy Carpenter says some carriers are reviewing their enterprise risk management practices as they concentrate more efforts on these emerging markets. This means not only pricing risks adequately, but also pursuing geographic diversification. The companies will also need to dedicate more resources, such as capital and catastrophe modeling to these regions, Guy Carpenter says.

Regulatory activity will also prompt greater focus on ERM practices.

“Solvency II and equivalent regimes will encourage insurers to better understand their risk profiles,” says Guy Carpenter. “This, in turn, will force primary companies to look at risk differently, particularly in emerging markets.”