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SYDNEY, Australia-Thoroughbred horse owners in Australia are creating a growing market for transit, mortality and loss-of-profits coverages for expensive horses flown in from the United States, United Kingdom and Ireland to improve the nation's stock.

The bloodstock insurance market for Australian risks currently is relatively soft, but as more horses traverse the globe for breeding in Australia, insurance rates may go up as demand for capacity increases.

Few Australian underwriters write the specialized business; the majority of risks are placed with bloodstock underwriters at Lloyd's of London and the London market, with French and North American insurers also writing substantial lines.

What is driving growth in Australia's horse breeding industry is that they can take advantage of seasonal differences with the Northern Hemisphere.

Every year, during the Australian breeding season that runs from mid-September to mid-December, stud owners import what are known in the industry as "shuttle stallions." The horses service mares during the Northern Hemisphere's spring and then are flown to Australia for the Southern Hemisphere spring, servicing as many as 240 mares in a full year.

James Bester, an independent bloodstock consultant to Hunter Valley, New South Wales-based Coolmore Stud, which also has a location in Ireland, said Coolmore's owners started dual-season breeding about 20 years ago after recognizing that "stallions would be better servicing mares in Australia than spending six months grazing."

But it has been only in recent years that Australia has seen large numbers of horses traveling south for the southern spring.

This season, more than 60 stallions are flying between Ireland, England and the United States to breeders in Australia.

The first successful shuttle

stallion, Coolmore's Godswalk, pioneered the concept when he was flown to Australia from Ireland in 1978.

Each shuttle stallion must service at least 75 mares in each hemisphere each season for shuttling to be cost-effective, though stallion owners usually target up to 100 mares, Mr. Bester said.

Arthur Ferguson, operations manager for Melbourne, Australia-based International Racehorse Transport Pty. Ltd., which shuttles the stallions between hemispheres, said this season 62 stallions are flying to Austraia, the same number as last year.

The stallions, with individual values in excess of $25 million Australian ($18.8 million), are insured for their full value by their owners. The coverage will indemnify the owners if the stallions are injured before, during or after the flight. Stud farms also buy coverage to protect them against paying costly stud fees for a stallion that fails to successfully impregnate mares.

Michael d'Apice, who as a rural manager for Sydney, Australia-based Wilburtins Pty. Ltd., overseas a portfolio of thoroughbreds and various other livestock, said the creation of a specialist market for Australian breeders means "more scope" in terms of insurance products.

For example, mares can be insured against being barren in a season or, once a mare is in foal, the fetus can be insured against spontaneous abortion or stillbirth.

Stud operators also can take out loss-of-income insurance, which often is incorporated into mortality insurance and provides coverage if an "imported shuttle stallion fails to perform," he said. The stud operators lose potential income if mares are not impregnated, and mortality coverage protects them against the stallions dying.

Insurers sometimes face very costly claims for infertile stallions, said Jeff Ogilvie, manager of Sydney-based Australian Insurance Agency Pool Pty. Ltd. That agency is affiliated with Sydney-based Gow Gates Insurance Brokers Pty. Ltd., a coverholder for Lloyd's.

"If a horse had four bookings for stud and was infertile, there are potential claims for all affected parties and, even though it is difficult to determine, such a claim can cost a lot," Mr. Ogilvie said.

Stud fees in Australia average $14,000 Australian ($10,539) for the top 40 shuttle stallions, though one stallion, Danehill, can command $100,000 Australian ($75,280) to service one mare. Danehill is valued at $25 million Australian. At last year's main thoroughbred sales, in Sydney at Easter, 30 Danehill colts and fillies netted $7.2 million Australian ($5.4 million). Danehill, owned by Coolmore Stud, sired the 1996 Melbourne Cup winner Nothin' Leica Dane.

Danehill's seasonal earnings of about $10 million Australian ($7.5 million) go offshore each year to his Irish owners, but Mr. Bester, the bloodstock consultant, said that investment is recouped by Australian stud owners when international buyers pay up to $700,000 Australian ($526,960) for Danehill's progeny.

While most bloodstock brokers agree the market currently is soft, they predict rates could start to rise as more capacity is required.

Australian Insurance Agency's Mr. Ogilvie said bloodstock insurers are "getting at least half-a-percent less than was optimal" for mortality premiums. He expects premiums to rise in the next two years as strong growth in the bloodstock industry continues in Australia and as Asia, particularly China, improves its position in horse racing by importing shuttle stallions to improve the bloodstock.

Mr. Ogilvie also expects China to introduce breeding programs, which would mean more business for underwriters writing transit insurance for bloodstock.

Bob G. Logan, managing director of Sydney-based Logan Livestock Insurance Agency Pty. Ltd., said he thinks Asian horse stud owners-including those in Singapore, Malaysia and Hong Kong-are beginning to appreciate the quality of Australian stock and will be seeking high-quality Australian stallions to bring to their countries for dual-season breeding.

Wilburtins' Mr. d'Apice said bloodstock insurance is expensive when compared with other kinds of insurance.

While property insurance, for example, currently is rated at about 0.02% of the total property value, racehorse mortality insurance costs about 3% of a horse's value.

But Mr. Logan said it is extremely difficult for underwriters to make money in the highly competitive bloodstock insurance market. "The losses are horrendous compared with the premiums," he said.

The Australian bloodstock insurance market is worth only about $20 million Australian ($15.1 million) in gross premiums, and "it doesn't take many claims to reach $20 million Australian." He said an average horse is insured at $10,000 Australian ($7,528) for mortality coverage for a premium of $350 Australian ($263), "which is not a bad bet."

Mr. Logan said policyholders pay another $25 million Australian in transit premiums covering the risk of injury for shuttle stallions.

The stakes for underwriters can be big.

In 1994, American Bankers Insurance Group Inc. in Miami, a major bloodstock underwriter, paid $1.6 million Australian ($1.2 million) for two claims for an Australian stallion, Golden Sword. The first claim was because the horse was infertile in the 1994 season.

Golden Sword then was sold to a Melbourne syndicate, which raced it in Sydney, but the horse had to be killed when it broke a leg at Sydney's Warwick Farm race course.

This year, Trieste, Italy-based insurer Assicurazioni Generali S.p.A. paid $25 million for U.S. racehorse Cigar, which after a brilliant racing career was found to be infertile.

Only "a handful" of insurance brokers specialize in placing coverage for Australian racehorses, including Melbourne-based Wallace Livestock Insurance Agency, Logan Livestock Insurance Agency, Wilburtins Brokers and Gow Gates Insurance Brokers.

Sydney-based HIH Winterthur, a unit of CE Heath International Holdings Ltd., is the only Australian underwriter currently writing bloodstock coverages, Mr. d'Apice said