LONDON-Bloodstock underwriters face tens of millions of dollars in losses from the foal health crisis in thoroughbred breeding in the state of Kentucky.

The mysterious loss of hundreds of unborn and premature foals is threatening horse racing stock for next season and causing concern among underwriters that write "prospective foal" insurance policies.

At the same time, one of the London market's leading bloodstock underwriters faces a record claim of L30 million ($42.6 million) following the death of former champion racehorse Dubai Millennium in Newmarket, England.

The 5-year-old stallion, worth an estimated L50 million ($71.0 million), was euthanized April 29 after contracting grass sickness, a disease of unknown origin that paralyzes the intestinal tract. Dubai Millennium had been put out to stud when a leg fracture sustained while exercising last August resulted in his early retirement. He had won the 2000 Dubai World Cup, the world's richest horse race, and was expected to earn tens of millions of dollars as a top stud.

Dubai Millennium was insured by Lloyd's of London syndicate 2488, managed by ACE Global Markets Ltd., sources say. ACE refused to comment.

The loss of Dubai Millennium is unlikely to have a major impact on the bloodstock market, because, unusually for such a large risk, only one syndicate insured it, sources say. Some of the loss may fall on reinsurers, although most sources believe that reinsurance for the claim is not significant. ACE declined to comment.

Bloodstock insurance is designed to meet such losses, underwriters point out. Previous record racehorse losses include a L23 million ($32.7 million) claim for U.S. racehorse Alydar in 1990 after he broke a leg in his stall, and a $25 million claim for Cigar after he turned out to be sterile.

"The Kentucky foal situation is a more worrying event for our industry and for the whole global thoroughbred industry," said John Muir, managing director of leading London equine broker Hughes-Gibb, a division of Willis.

"Kentucky has the highest percentage of best brood mares in the world, and the very high number of unborn foals will have an impact on the horse racing industry next year," Mr. Muir said.

Although only 25% to 50% of the mares and lost foals are likely to be insured, it will still affect insurers in the United States and London, he said.

"There are a substantial number of claims across the full range from $10,000 to $1 million, and these losses are very well spread throughout the marketplace, with no particular insurer having a dominant market share. As a result, the majority of claims will be retained losses and will have a negative impact on underwriters' loss ratios," Mr. Muir said.

As of May 15, Kentucky's equine population had suffered 468 early and late-term fetal losses-more than 700% above the normal rate of unborn foal losses expected during the breeding season in Kentucky, according to experts at the University of Kentucky in Lexington.

Scientists and staff from the university's Maxwell H. Gluck Equine Research Center and the Livestock Disease Diagnostic Center have been working round the clock to identify the cause of the problem. The main area of investigation is contamination by a toxin-producing parasite of Kentucky's famous bluegrass pastures, possibly caused by unusual climatic conditions earlier this year, according to a daily briefing posted on the university's Web site on May 15. But "the scientific teams feel confident that Mare Reproductive Loss Syndrome is not an infectious or contagious disease," the briefing said.

Lloyd's of London bloodstock underwriters, who have temporarily stopped writing prospective foal insurance, held an emergency meeting May 11 to assess the situation and consider future action, said a spokesman for the Non Marine Assn. Livestock Committee.

Close contact is being maintained between underwriters, vets and breeders. Some mares may be rebred to deliver a foal before the breeding season ends in July, underwriters say.

It is a condition of the insurance policies that breeders seek to mitigate the loss by rebreeding the mare, if possible, said Mr. Muir. There would also be a financial incentive for breeders to try again, because prices for next year's foals likely will be high due to short supply, underwriters and brokers point out.

Prospective foal insurance covers the loss of the foal during pregnancy and to a specified time after birth, said Julian Lloyd, bloodstock underwriter for syndicate 33, which is managed by Hiscox Syndicates Ltd.

Lloyd's is a licensed insurer in Kentucky and is one of the leading players in the bloodstock market.

Mr. Lloyd said that the Kentucky problem will affect the market only if the losses are particularly large. Since Jan. 1, reinsurers have been tightening rates, and direct underwriters have been trying to increase rates, but there is still plenty of capacity in the bloodstock market, he noted.

The scale of the losses also will depend on how many mares successfully rebreed before the season ends, Mr. Lloyd said.

"The reinsurance market has suffered considerable losses on bloodstock over the last few years and has hardened since January. This has led to some hardening of the direct market, and I would expect the market to continue to harden as a byproduct of this event," Mr. Muir said.

"The insurance market in London is viewing the situation in Kentucky very seriously," said David Ashby, global bloodstock underwriter for QBE International Insurance Ltd. in London.

Mr. Ashby, however, is not confident that the situation-or, indeed, the Dubai Millennium claim-will push rates up.

"Underwriters know rates should go up, but unless underwriters are prepared to accept that they are making an underwriting loss, they are not going to put rates up," he said, noting that he has seen no signs of rates increasing in the past few weeks.

QBE significantly reduced its exposure to the U.S. bloodstock market last year because of inadequate rates, Mr. Ashby pointed out.