If the buyer had lodged a paypal claim in the allotted time, you had proof of shipment so paypal should have covered the buyers money, at which time you should be able to claim back the compensation from the post office. I think if you have the appropriate paperwork then isn't paypal, and not the seller/sender, responsible for items not arriving?

I think it would be fair to voluntarily refund the item cost but I'd argue that postage is not refundable in this case.