Investment in modern art has provided fine returns, but for how long asks Andrew Holt

The picture painted by specialist insurer Hiscox shows that investors in contemporary and modern art have framed excellent returns, with figures from last year showing the value of contemporary art has risen by 55% and modern art by 44%.

Other areas of art also saw increases in value. Significant earners, according to the annual Hiscox Art Market Research (HAMR) Index, include English sporting paintings (an increase of 26% in the last year) and European 19th Century paintings (an increase of 19%).

The huge rises in modern and contemporary art will come as little surprise to those with an eye on the market. The last six months has seen one of Damien Hirst's trademark medicine cabinets sold at auction for £9.65m, breaking the European record for work by a living artist.

This year has also seen a record auction price fetched for a Banksy painting as Space Girl and Bird went for £288,000.

Earlier this year, Christies enjoyed its highest ever total for a week of art sales in Europe when, in June, the London art auctions raised £237million. The pick of the sales was Claude Monet’s Waterloo Bridge which sold for £17.9 million.

Other areas of the art market however are less buoyant. English water colours fell by 27% and British 17th-19th Century portraits fell by 7%.

According to Hiscox, one of the UK’s high net worth insurers, increases in the value of art and antiques means that their owners can be exposed if they do not realise how much their possessions are now worth.

Charles Dupplin, art expert at specialist insurer Hiscox, said: “It has been a tremendous year for modern and contemporary art. It seems that every few weeks another record breaking price is being paid for a leading artist."

Although the question now has to be how will the market fair in the current, tougher, credit crunch environment? With less money swilling around and less bonuses being paid out, surely this is one area of the insurance market that will be squeezed first?