“I found myself at one time unemployed, and I knew horses. So I started selling horse insurance,” he said, explaining his entry into the business.

Mr. Hoffbergers wide knowledge of thoroughbreds is what prompted Barclay Tagg, a longtime friend and trainer of an up-and-coming gelding named Funny Cide, to call when the owners needed to insure the horse, according to Mr. Hoffbergers own account.

“I had seen the race record on the horse. So I knew the horse,” Mr. Hoffberger said. “We insured the horse, and as he kept winning, we made some adjustments here and there.”

Funny Cide recently caused a sensation when he won the 2003 Kentucky Derby and the Preakness Stakes.

Mr. Hoffberger said the typical policy on a racehorse is an annual contract, similar in concept to a term life insurance policy. As a horses value increases, the owner has the option to increase coverage, he said. “Take a horse like Funny Cide that is very famous and very valuable. Any horse that can run at that level is worth a fortune,” he noted.

Since most horses are worth far less than Funny Cide, this is where a little horse sense is helpful. “You don't want to get into a situation where someone wants to insure their horse for $50,000 and it's worth $2,000,” he explained. “If you do, there is a good chance that horse will end up dead.”

Just how much Funny Cide, or any horse for that matter, is worth, is something Mr. Hoffberger wont divulge.

Most racehorses, he said, fall into the category of thoroughbred. Their owners typically fall into three categories. There are owners with farms of 30 or more horses, owners with “all or parts” of 15 or more horses, and owners of one or two horses, he said.

What does he look for when determining whether to insure a horse?

“The basic policy is called an actual cash value policy,” he said. “We want to make sure we are not insuring the horse for more than it's worth.”

In the event that an insured horse gets hurt, “you have to know what you're doing with the horse, and sometimes help the owner go in the right direction,” he said. Like any other athlete, racehorses can sustain injuries, he explained.

“You think about football players or baseball players. They all get injured,” he said. “How quickly they come back and how successful they are in their careers is based, in part, on what kind of medical care they get. This is why, if you see an athlete get hurt, the trainer is out there tending to them. Its the same with a horse.”

Julian Lloyd, an underwriter with Hiscox, a Lloyd's syndicate in London, said the thoroughbred bloodstock, or racehorse market is hardening, but lags “about 18 months behind the rest of the insurance market in the world following Sept. 11.”

Mr. Lloyd said the delay is a consequence of the fact that the market is a fairly small one, “with a relatively small numbers of carriers.” In fact, Mr. Lloyd explained, out of 86 Lloyds syndicates, only six insure racehorses. “If one of those syndicates decided to stop insuring horses, that would be quite a large percentage change in the market capacity,” he said.

He said the vast majority of Lloyds racehorse business consists of large corporationsmostly thoroughbred stud farms in Kentucky. “We also insure people with two or three show horses, but they tend to be more orientated to the U.S. market,” he said.

The annual life insurance covers the life of the horse and does not include the jockey, which he said is a “completely different subject. We just deal with the horses.”

“Some health insurance is done in the U.S. for privately owned individual horses, but is not widespread,” he added.

Thoroughbred racehorses can be insured for extremely high amounts. For example, he noted a horse in the 1980s named Seattle Slew that was insured in London for around $100 million. The horse is now “dead of old age,” he said.

“There would be only a handful of horses in the world of that mega-value,” he said. “You're looking at a money-making machine, so when he's a racehorse, he's got to be winning races. If he's a stallion, he retires to stud and he's got to be producing the offspring that sell for money. So he's got to generate his own income and stud fees.”

Top horses that “disappear to stud” often operate for a few seasons at stud and, “if they don't get runners and winners, they vanish from the North American and European continents,” he said. They can end up in Japan, Turkey, or “wherever there is racing and gambling.”

Sometimes these horses are insured, but “it's really a question of finding an insurer who's got an appetite for insuring horses in Turkey or Thailand or Malaysia. Their life expectancy tends to fall,” he said.

Mr. Lloyd said the potential of fraud is always present. Fraud on a horse typically is discovered “some time after the event, “when somebody was caught doing something else and confessed to another crime,” he said. “Occasionally you spot these things at the time, but more often it's 30 years later.” Only infrequently is fraud discovered on autopsy, he noted.

Mr. Lloyd explained that the term “thoroughbred bloodstock” refers to horses “entitled to be registered in the general stud bookthe register of thoroughbredswhich each country maintains for its own thoroughbred stock.”

He agreed that the racehorse industry is “highly specialized. You've got to know the racehorse industry quite well. And you've got to know insurance and veterinary science quite well.”

Otherwise, he said, “You end up writing a horse that isn't worth it for people who aren't worthy of it. And claims tend not to be very straightforward, and you end up in a muddle not understanding what's going on and losing money.”

Mr. Hoffberger said infertility coverage is popular for owners of breeding stallions that are no longer racing. The policy covers the owner in the event the stallion does not impregnate mares, he said. Depending on their contract, owners of mares that do not foal would be reimbursed.

He said the most popular stallion to breed in the United States is named Storm Cat–”a very fast horse whose foals tend to run very fast. And if you want to breed to Storm Cat, on average its going to cost you $600,000. You pay that money up-front and if your mare doesnt get in foal, no guarantee.”

At the opposite end of the scale is a horse whose fee is $1,000. “You can imagine those people are saying, Breed today. If you get a foal, pay tomorrow.”

XL Insurance, located in Bermuda, also offers equine mortality coverage. A company spokesperson said XL, which also offers equine liability, barrenness and prospective foal coverages, has offices in Kentucky and London.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 4, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.