LONDON, Mar 10 (Reuters) Insurance underwriters are to refuse to cover thoroughbred horses against bird flu, for fear that an epidemic among horses could potentially cost them tens of millions of pounds.

Bloodstock underwriters at Lloyd's of London, who insure racing and competition horses, are introducing exclusions to their policies to protect themselves against claims if thoroughbred horses die from a mutated version of bird flu.

Although the virulent H5N1 bird flu has so far affected mainly only poultry, there are fears that it could mutate into a form that could be passed between other animals and humans, sparking a worldwide pandemic.

Though insurers say they see little overall impact on their balance sheets from such a pandemic, bloodstock underwriters fear potentially crippling claims because many top thoroughbreds are heavily insured. Lloyd's underwriters have insured horses for up to 35 million dollar.

The situation in the bloodstock industry is also complicated by the fact that thoroughbred horses frequently travel across the world to race and to breed.

''We need to know what our potential exposure is in a particular area and at the moment we don't know that, because (the horses) are moving about all the time ... (so) we decided to add an exclusion,'' said Julian Lloyd, bloodstock underwriter at insurer Hiscox Plc.

''Potentially (a mutated virus) could cost us quite a bit of money and we're having to work out how to give the best type of cover to our clients without possibly putting ourselves out of business,'' Lloyd said.

Bloodstock underwriters are working on the assumption that any mutation of the bird flu virus that could infect horses would not occur before 2007, if at all, Lloyd said.

''Our view is that we aren't doing the client base any harm for the moment by doing this,'' said Lloyd.

Insurers are likely to offer horse and stud farm owners bird flu cover in future, Lloyd said, but as a separate policy for which clients would have to pay extra.

REUTERS SI KP0936