“Because its quite expensive, not that many people buy it,” said Julian Lloyd, bloodstock underwriter for Hiscox, a Lloyds syndicate in London. He noted, however, that underwriters stopped writing the coverage “as soon as someone made sense of what was happening.”

While findings were not conclusive, researchers surmised that the cause of mare reproductive loss syndrome, or MRLS, in 2001 was linked directly to the exoskeleton of the Eastern Tent Caterpillar, rather than a virus carried by the caterpillar.

The theory was that the caterpillars, which cocoon in wild cherry trees, ate the leaves of the trees. Their droppings produced a cyanide compound. The droppings of these caterpillars fell onto the grass, which the mares ate, causing them to abort.

Another theory is that there were unusual climatic changes at the time.

“They say that when you have a period of warmth and then a cold night and a big frost, it causes potassium to spike in the grass,” said Richard Hoffberger, president of The Hoffberger Insurance Group in Baltimore, Md. “This could be one of the factors. It is one or the other or a combination.”

Mr. Hoffberger noted that some farms lost virtually their entire crop of horses. He added that “thinking that the cherry trees were part of the cause, many people in Central Kentucky went and chopped down their cherry trees–thousands and thousands of them.”

This must have helped, he said, “because the problem seems to have gone away, but how do you know it wasnt a combination of a certain temperature and a certain humidity?”

The event, he said, was sudden and “made coverage impossible. You couldnt buy it.” If you had a mare in Washington State, however, “carriers didnt think you had much of an issue.”

Mr. Hoffberger recalled that the event happened on a Friday. “The mare owners were taking the foals to the clinic, and when they got to the clinic there were lots of dead foals. By Saturday it was an epidemic,” he said. “You just stopped writing” the coverage.

Terry McVey, president of Equine Insurance Claims Service Inc., in Richmond, Ky., explained that the event happened quickly, just before Derby Day, 2001.

“It wasnt until several weeks after the Derby that the veterinarians started to realize something major was going on,” he said.

“This was a problem that affected very early pregnancies or late-term pregnancies.” Late-term pregnancies would have been mares bred in 2000horses have an 11-month gestation period, he said.

Mr. McVey said that when foals started dying “just before Derby, a lot of people knew there was something going on, but they didnt know what.” At first, “everybody was more concerned about who was going to win the Derby. After the Derby, it was a very sobering realization of what had happened.”

He noted that horses of all breeds in the area were affected, but because thoroughbreds are so tightly regulated, “there was documentation of everything.” He said that because breeding of thoroughbreds is done naturally, without the use of artificial insemination, records are kept of which mares are bred to which stallions.

There was “a tremendous rush on prospective foal coverage and they were getting these orders in London like crazy,” he said.

Julian Lloyd of Hiscox said that once it was known “there was a factor out there that was causing a problem, vast numbers of people who had never bought unborn foal insurance before started trying to buy it.” At the same time, he explained, underwriters said, “Until we know whats going on, we wont take on any new business.”

He added that MRLS has had a long-term effect on the market because rates have continued to rise, making the number of policies sold “minimal.” Those policies that are sold are to cover the stud fees for very expensive prospective foals, he added.

Mr. McVey said that for a period of time after the event, coverage for pregnant mares was not offered. Now, he said, the premium is higher than before, but that coverage is available. He said that lines of business include equine mortality; prospective foal; fertility coverage for stallions; accident, sickness and disease; and transport insurance.

He noted his companys largest prospective foal coverage claim was $500,000-$750,000. The amount of coverage for a prospective foal, Mr. McVey said, is determined by a formula based on the stud fee paid and the value of the mare.

Mr. Hoffberger said that coverage is back to normal, but the cost is “about 50 percent more than it was pre-MRLS.”

Since the event, he said, “I think that everyone in Kentucky is pretty much in agreement as to how to manage their farms to mitigate that exposure.” For example, he noted, one of the ways caterpillars move from one spot to another is along fence lines. “So you could have a neighbor who has cherry trees because maybe he has cattle. And his fence might be close to your fence. People have taken steps to make sure the caterpillar doesnt get to their farm.”

The University of Kentucky recommended containing the caterpillars by spraying fences with low-risk pesticides.

Mr. Lloyd said that there has been a ripple effect from MRLS because of the lack of thoroughbreds. For example, Keeneland, a major sales company for thoroughbreds in Lexington, Ky., just cancelled its July sale for the second year, he said. (On its Web site, Keeneland noted that the next sale will be in September.) “I think the issue was they canceled the sale because there wasnt the stock there to sell, Mr. Lloyd said.

Mr. Hoffberger noted that the equine insurance market is now “stable,” but the West Nile virus is still somewhat of a threat during summer months although most horses are vaccinated. “In fact, most policies now say if you have a term-life policy and have not vaccinated the horse against West Nile, they wont indemnify the policy,” he said.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, January 30, 2004. Copyright 2004 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.