MRLS Jacks Up Insurance Rates; Policies Offered as Incentives

Published in the Nov. 17 issue of The Blood-Horse
Prospective foal insurance used to be about the new owner of a pregnant broodmare protecting his investment after the purchase. At this year's Keeneland November breeding stock sale, insurance coverage became an incentive to buy the mare in the first place.

Insuring an unborn foal bred in Central Kentucky was impossible three months ago because of mare reproductive loss syndrome (MRLS), a still-mysterious condition that caused the deaths of over 500 late-term foals and ended nearly 3,000 pregnancies for 2002. After the losses subsided and ultrasound examinations showed that surviving fetuses appeared normal, insurance companies gradually began writing policies again--but at a predictably higher price.

Prospective foal insurance was never cheap. Earlier this year, mare owners were paying an 11% rate on average. The insurance premium is calculated using either 50% of the mare's purchase price or the stud fee times two or two and a half, whichever is less, according to insurance agents. Now, the insurance rate is between 16% and 18.5%, and coverage is not always available.

"It has always been a mare-by-mare situation," said Augie Greiner Jr., who runs the Lexington office of Jerry Parks Insurance. "But now, they are even more skeptical and nitpicky than in the past. Before, the individual mare would dictate the rate you would get, and now it dictates whether you even get a rate."

Farms with broodmares slated to sell at Keeneland in November and unaffected by MRLS knew they were still in trouble come the fall. Several decided the only way to protect their mare's value was to get them insured, but it wasn't easy.

"We talked to about 15 carriers over the months of June and July, and no one would write it for any premium," said John Hamilton, who is in charge of client development at Three Chimneys Farm near Midway, Ky.

Hamilton then talked with Kevin Lavin, an insurance agent from Louisville, who often works with Lloyd's of London. Lavin told him he could find the insurance. Lavin and agent Kim Schipke spent months negotiating with Lloyds. Between Aug. 20 and up to a week before the sale, Three Chimneys was able to insure 11 mares at rates between 10.75% and 12%. Three Chimneys' clients who owned the mares paid the premiums in full. The only condition attached to the insurance was that a mare had to remain at Three Chimneys until she delivered her foal; otherwise the policy would be voided.

Lloyds required the condition because the international insurance syndicate was dealing with MRLS and the aftermath of the Sept. 11 terrorist attacks on the United States, according to Hamilton.

"Most of the companies who did provide coverage required the buyer to board the mare at a certain farm," Greiner said. He also said he thought providing insurance coverage on broodmares proved to be a good marketing tool this year.

"I have heard of it done before, but I have never seen it done to the extent they did it this year," Greiner said.

Hamilton said he believed the insurance helped protect the broodmares' value.

"Did people buy our mares because of the insurance? I don't know," he said. "There are so many factors involved in the decision. I do believe most of these mares were enhanced by the coverage."

Hamilton said the market seemed a little soft for older mares so he felt the insurance coverage helped Golden Jewel Box, a 12-year-old daughter of Slew o'Gold who was in foal to War Chant. The mare sold the first day of the sale for $625,000 to Gaines-Gentry Thoroughbreds.

The insurance unquestionably added value. For example, one of Three Chimneys' insured mares was 7-year-old stakes winner Starry Ice, who was in foal to War Chant. The mare sold for $205,000 to Heiligbrodt Racing Stable. If the mare had not been insured, prospective foal coverage at current rates would have cost her new owner, Bill Heiligbrodt, an annual premium of about $18,450.

Some who bought Three Chimneys' insured mares also own farms and probably do not like having to pay board somewhere in order to keep the insurance. The value of the insurance, however, still is far greater than the board bill. In the case of Starry Ice, if the mare's coverage was based on War Chant's 2001 stud fee of $75,000, then the previous owner paid about a $16,000 premium for her insurance. Starry Ice is expected to foal in late February, so the new owner--at an average of $25 per day--will pay about $2,850 in board.

"It was a good little deal for this year only," Hamilton said. "Next year there may be another set of problems."