Stallion Insurance

There is virtually no investment in the horse business, short of buying a farm, that equals the investment in a stallion. Whether an individual is buying a horse or several members get together to form a syndicate, the price can run well into the millions for a top prospect. Even at the low end, a stallion prospect costs considerably more than most people will ever think of spending on a house.

Few would think of buying a house without insurance, and the same is true of stallions. When that much money is invested, insuring the horse's survival and his ability to breed is very much like insuring your house or any other major asset. Even if the owner is the person who bred the horse or bought him at auction at a much lower initial value, there is the consideration of future earning power.

Joe Brown Nicholson, owner of Nicholson Insurance Agency in Lexington, Ky., said most Thoroughbred (and other breed) stallion owners or syndicate members do carry insurance these days. With stud fees rising in the wake of booming yearling prices, insurance is likely to become even more critical, he said.

The basic types of insurance offered for a stallion fall into three categories, Nicholson said. The categories are:

  • Congenital infertility--This insurance protects against stallion infertility based upon some problem the stallion was born with and that cannot be corrected.
  • Mortality--A simple life insurance policy.
  • Accident, sickness, and disease--This broad category protects against anything caused by those three circumstances that would render a stallion infertile or unfit for breeding.

The package for guaranteeing a stallion's breeding ability is complementary to mare fertility insurance (see The Horse of November, page 61). Insuring a mare to produce a live, healthy foal involves more than one type of coverage, too. The key elements of that coverage are barrenness, which guarantees the mare will conceive a foal; prospective foal, which guarantees the mare will conceive a foal; prospective foal, which guarantees the mare will carry the foal to full term and that it will carry the foal to full term and that it will be able to stand and nurse according to the industry standard; and stallion availability, which guarantee the stallion will be alive and ready for the mare during the contracted season.

In some slightly related cases, people who buy no-guaranteed seasons, which usually sell for about two-thirds of a guaranteed season, will augment that purchase with insurance guaranteeing a live foal. Usually the less expensive season and the insurance combine to be less than the cost of the guaranteed season.

Concerning the three types of insurance for stallions, the first, congenital infertility, usually comes into play only in the first year the stallion stands at stud. Nicholson said that, although stallion prospects usually are tested for sperm production and bred to test mares before they are syndicated and begin their first year in the breeding barn, the proof is literally in the production.

"The ultimate proof is whether or not the mares remain in foal and actually produce the foals," Nicholson said.

It might be a problem for veterinarians and researchers to ponder, but stallions do not always produce offspring as readily as lab results would indicate. However, once a stallion has stood a season, the mares have come into foal at an acceptable rate, and they have produced live, healthy foals, the issue of congenital infertility is set to rest. So that insurance, at least, is not necessary throughout a stallion's career.

The other portions of stallion insurance--mortality and accident, sickness, and disease--are considered necessary for the stallion's entire career at stud.

Nicholson said that generally the cost of insurance--for the whole package, including congenital infertility--ranges from 8-12% of the value of the stallion. That range is based upon the coverage need of the owner. Depending upon economic considerations, some owners might choose to insure a stallion for less than his total value, reducing the cost of insurance.

The cost of insurance, like the value of the stallion, can and will vary over the career of the stallion. Each year, the syndicate manager or owner and the insurer will review the value of coverage that is appropriate.

"The major factor is the size of the book and the stud fee in comparison to what the insured value is," Nicholson said.

Nicholson warned against thoughts of over-insuring a stallion that has declined in value. "Insurance is not meant to be a profit-taking experience for an insurer, but rather to put him or her back into the position they were right before the loss," he said.

People buy insurance to protect themselves against things they hope will never happen. In the case of a promising stallion prospect, being faced with fertility problems is second only to death of the animal. Nicholson said most underwriters regularly receive monthly statements prepared by syndicate managers or stallion owners detailing the number of mares bred and the number in foal. This allows the underwriter to maintain contact with the stallion's progress.

"If there's a problem, it becomes apparent as the breeding season is unfolding," he said. "They just don't get a phone call in July that says, 'By the way, we didn't get any mares in foal,' " he said.

Once a problem becomes apparent, a three-way communication begins among the underwriters, the stallion's manager, and the veterinarians involved.

If there is a fertility problem--generally defined as getting less than 60% of mares in foal--the owner or owners then face a decision. In most policies, they can choose to roll the policy over for a second year rather than force the insurance company to pay up. That gives the owners the opportunity to try to solve a problem and get the stallion back on track, a wager that the stallion's future career is worth more than the insured value.

If, however, the owners decide, whether at the end of one or two years of low fertility, to collect on the policy, they retain no interest in the horse when they collect.

"If the owner wants to enforce the contract, he would turn the horse over to the company and the company has the right to continue to stand the horse or sell the horse," Nicholson said.

Considering the actual and potential value of a stallion, most owners buy insurance, Nicholson said. In some cases, a syndicate manager might buy congenital infertility insurance for a new stallion and either pass the cost on to the members, or use that as a marketing tool to reduce the risk for people interested in buying a share.

Nicholson said the question of who should buy stallion insurance comes down to a simple business decision. "Each situation is circumstantial based on financial risk--at what level can the stallion owner or the season purchaser stand a loss."

About the Author

Jacalyn Carfagno

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