Lloyd's has stopped insuring against horses giving birth to dead foals in several US states because a mystery illness is leading to hundreds being stillborn. By last week, nearly 500 had been reported stillborn to the University of Kentucky Livestock Disease Diagnostic Centre in a month.

The illness, mare reproduction loss syndrome, is thought to be related to mycotoxins produced by fungus in pasture grass. This affects the placenta of the horse and prevents the unborn foal breathing properly.

Each year, approximately 10,000 bloodstock foals are bred in Kentucky during February to July. The value of a foal can range from $10,000 (£7,040) to $500,000 (£352,100) and the state has a horse industry worth $1bn (£700m). It is estimated that 5% have died.

Adrian Beeby, spokesman for Lloyd's, said: “In the midst of the outbreak, where a huge number of foals are failing to go full-term, it is almost impossible to get cover.”

He said in order to provide protection for the animals, insurers require a vet's certificate in advance, stating that the foal is developing well and there are no other factors that need to be taken into account.

“At this point there's no vet who can do that, as there's a major problem,” he explained.

But Beeby added insurers should be able to provide cover again in mid to late summer after the illness had subsided. The last outbreak of mare reproduction loss syndrome was in the 1980s.