In the frame

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The art market is an unusual one, with a few niche areas rising in value, while others fall by the wayside. Veronica Cowan reports on the switches in fortune

The art market is nothing if not fickle. While some niche areas and artists are bucking the trend, the Mei Moses annual index, released on 7 April, reveals art prices fell by a massive 35% in the first quarter of 2009.

Contrast that with the five years to 2007, when art prices rose by an impressive annual average of 20%, as worldwide wealth spawned new collectors and markets in places such as Russia and Asia. But the signs of a switch in fortune were already present last year, after art prices fell by 4.5%.

As the downward spiral accelerated, collectors cashed in their purchases of post-war masters - the hardest hit according to the index, which combines New York and London prices. Generally speaking, post-war and contemporary works, having earlier soared in price, have now fallen the furthest.

So, how does this square with the record sale prices for fine art and other collectables, including that of South African and Greek artists, recently reported by auction house Bonhams? Well, first of all, those sales took place last autumn and, secondly, some niche areas might be proving recession-proof.

Take the apparent resilience of the Chinese market - a Qing vase sold for $6.1m (£4.1m) as part of an $89m lot at Sotheby's April auction in Hong Kong. The South African and Greek art sales are also relatively esoteric areas, according to Clare Pardy, fine art underwriting manager at Ecclesiastical Insurance. Robert Read, fine art underwriter at Hiscox, agrees, saying that neither group is representative.

Remaining stable

Works by old masters, which had become a less fashionable genre in recent years, have proved more stable and Mr Read remarks that, at a time like this, quality tried and tested items remain firm. "In a recession things revert to the core market of real collectors. The market is devoid of speculators at the moment, which is why huge profits have gone, but true collectors are always looking for quality." He cites the record-breaking Yves St Laurent-Pierre Berge sale in February, which saw a string of world auction records tumble in the private collection sale of art and antiques at Christie's in Paris, totalling EUR373.9m (£334m). The collection included impressionist and modern art, as well as 20th-century decorative art, but it was a blip, says Mr Read, who notes that the haute couture designer had a good eye and did not argue when looking at the price of something good. "They come on so rarely that we won't see this again for another generation," he predicts.

Old masters are always favourites in a downturn, agrees Matt Coles, a specialist valuer in the Davies Group's fine art and antiques unit. He explains they represent a part of the art market that consistently remains stable, while "markets grow and fall in Victorian art, impressionism, modern art and contemporary art". He adds: "Don't forget that, although Christie's and Sotheby's represented approximately 75% of the world's turnover in auction sales of fine art in 2008, they only represent 16% of the total transactions - according to Artprice.com. The majority of sales in art are under £100,000 - and not the millions of pound marks that hit the headlines." Asked to explain the art market performance in the first quarter of 2009, the chief executive officer of Artprice, Thierry Ehrmann, comments: "Art market prices continued to fall early in 2009, but less sharply as confidence in it rose, from -14 in November to +14 in March. The market hasn't entirely regained its confidence but the crisis offers collectors interesting prospective artwork acquisitions. The strength has shifted in a brisk and brutal re-evaluation of prices - demand is once again becoming the key element and supply is adjusting to the economic conditions."

Turning to other valuables and collectables, Ian Davies, household products manager at Home & Legacy, says there is still an appetite for niche pieces, and specialists are seeing spikes in prices. Bonhams has also highlighted vintage musical instruments as a desirable form of art, and this is one niche market in which Heath Lambert's private client division is heavily involved. "Collectors are usually enthusiastic amateurs and some stringed instruments are worth a huge amount of money," says Richard Northcott, managing director, who adds that "values have consistently risen". And Julian Roup, spokesman for Bonham's, reports that its auction of musical instruments in March totalled £526,800, with such items as a silver-mounted French violin bow of the JB Vuillaume School, an Italian cello attributed to Stefano Scarampella and an Italian violin by Giuseppe Lucci going under the hammer.

Volatile valuations

Price variations must wreak havoc with insurance valuations, and Mr Read says significant amount of underinsurance remain. "Even when modern art adjusts downwards, most people don't have single interests, so you have to look at the value of their entire collection."

Andrew Jobson, executive director of the estates and private client practice at HSBC Insurance Brokers, comments that top-end clients are surprisingly price-conscious, despite their wealth. "This demonstrates that everybody is affected, and the rich are looking at their art and antiques and questioning their values. Some insurers have reduced index-linking to practically zero, but not all are doing this and need to look at it," he says. He continues: "All high net worth insurers - bar one - allow the client to choose the value and brokers should ask clients if they want to reduce this. It makes them competitive and should help clients, because they need an awareness of what is happening in the art market." As to the impact on premium income, he says there is no reduction in premium rates: "This is because insurers are not making much money from HNW, and there have been a lot of expensive claims for fires and frost-water. So, the insurance cycle generally is not in line with the recession."

Coupled with this, HNW insurers are seeing an increase in general burglary, but this is not yet turning a profitable portfolio into a loss-making one, according to Mr Northcott. From a risk perspective, he says most clients have high levels of security, but nine out of 10 specialist insurers underwrite on the individual more than on the level of security, because "the right people take care anyway".

Educated clients

Policyholders obviously do not want to pay more than they need to for cover, and Mr Davies comments: "Clients are generally well-educated in what they buy, and are getting items re-valued downwards." He has also noticed an increase in business for valuation companies as clients and insurers seek revaluations. But Ben Doveton, managing director of Aon Private Clients, makes the point that, because art is traded in Euros and dollars, premiums are still going up for UK policyholders due to the weakness of sterling.

The number of theft and malicious damage claims in the first two months of 2009, compared with the same period last year, increased by 30%, according to Mr Davies, but specialist insurers have not seen any specific increase in targeted burglaries. "Stealing art is the dumbest form of theft," remarks Mr Read, "as there is no chance of getting rid of it at its true value." He does, however, predict more fraud "and people will be more aggressive in what they are trying to claim".

Ms Pardy says there have been some high-profile country house thefts - where porcelain and bronzes have formed a significant part of the haul, plus one example of an important Chippendale piece from a Yorkshire country house - but remarks that it is difficult to link recent trends in the art market to thefts as there is often a time-lag between what is happening now and what thieves traditionally see as being attractive. Mark Bosshard, fine art underwriter with XL Insurance, says he has seen "no sudden surge in theft, and increases in claims have not been as high as it was perceived they might be. You really need to be an expert to know what you are stealing."

The burglars, who stole a rare bronze statue of a horse - worth an estimated £200,000 - from a garden in Lingfield, Surrey, in April, seem to have had such expert knowledge. Mr Read believes this could be part of the trend for stealing metal sculptures for their heightened scrap value, although he agrees that the crash in commodity prices, linked to the downturn in the Asian economy, has prompted such targeted thefts to go off the boil. Mr Northcott adds that fine art does not tend to be targeted, because it is difficult to fence, observing that such thefts tend to be to order and for ransom. Indeed, most commentators remark that damage in transit - between houses and to 'on loan' exhibitions - make up the majority of losses in the fine art sector.

According to Bonhams, jewellery is a solid asset in a global economic downturn, but from an insurer's perspective it can pose a bad risk due to its portability and ease of being stolen and disposed of. This includes being melted down and separating the gems from the gold, making the chances of recovery poor.

John Wakefield, managing director of Connoisseur Policies, avoids risks where the jewellery element is too high but will look at them where this is proportionate. Mr Doveton adds that because the price of gold is going up, jewellery values are increasing, leading to more theft of jewellery than art. While Ms Pardy reports that, traditionally, insurers have been particularly nervous about silver and jewellery as such items can be resold quickly - either by being broken down or because they are difficult to identify. The approaches to underwriting art and jewellery are, therefore, quite different, notes Mr Northcott. With jewellery, the underwriter might want details of wearing levels, lifestyle and whether the client travels with the jewellery, to tailor cover to use.

Recovery successes

On the good news front, technology appears to be enabling greater recovery successes in the field of stolen art. In 2007, the 10th Duke of Buccleuch announced that his family's version of Leonardo da Vinci's Madonna with the Yarnwinder (circa 1501-07) had been recovered, having been stolen in 2003 from Drumlanrig Castle. Mr Coles says one of the general obstacles to recovery is the lack of details about an item. "For a recovery to be made satisfactorily, all parties have to agree that the object found is the same as the one stolen. This can be hard to achieve if the only detail you have of the stolen object is 'a portrait of a gentleman'." He advises all clients with high value collections to have a formal valuation, failing which "photographs are an invaluable resource in identifying and recovering stolen items. They can be taken quickly, in each room, and stored on CD or via any other electronic method. I can't emphasise enough how important photographs are."

So, what degree of information sharing takes place between specialist insurers, brokers and auction houses or specialist shops to prevent stolen items being re-sold or tracked effectively? According to Mr Coles, there has been a great deal of such activity between auction houses, dealers and insurers. "Most goes through the Art Loss Register, and the database of stolen art is cross-checked with auction catalogues. The antiques trade is also able to check the register for items before making a purchase." As to how policyholders are alerted to developments, Mr Wakefield clearly keeps a weathered eye on prison releases. "While there is no increase in targeted burglaries, we know some people with form for this kind of thing have recently emerged from prison, and we share the information with our clients."

As to how fickle the market is and, thus, what the next 'big thing' will be, Mr Coles concludes: "One growing fashion in the art market has been for 'urban art', with Banksy being at the forefront. But prices appear to be dropping off almost overnight, so I suspect we will see a few false starts as the auction rooms look for that new market they can exploit."

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