EUROPE - Pension fund solvency significantly improved in the first six months of this year in three European countries but may now have been hit by market losses, suggests research from Lehman Brothers.

In the first of its six-monthly European Pensions Briefing reports, the global investment bank said the Netherlands saw the best solvency level growth in the first half of this year to 15% while UK pension funds saw its solvency levels improve by 8% and plans in Germany rose 10%.

That said, solvency levels are likely to have been hit by the investment market losses first seen in July, added the asset management firm, as falls in both the equity and bond markets will mean "the net effect has been to surrender some of the recent improvement in solvency".

The firm admits the figures it uses are only assumptions at this stage as this first report, produced by Lehman's European Pensions Advisory Group, uses typical asset allocation for each model along with estimated solvency levels for the UK and Netherlands and initial pension funding levels of 50% 100% for Germany.

But Lehman will in future track the true movements of current solvency levels so investors and those involved in the financial management of pension liabilities can see the exact performance of both hedged and unhedged solvency levels.

Lehman's analysis revealed the Netherlands appears to be the best performing sector because it has an assumed lower weighting in Eurobonds of 35%, compared with 50% in Germany, and a lower equity weighting of 20% to each class of domestic and overseas stocks compared with 30% in the UK, where domestic stocks did not fare as well as the other countries.

Returns in all three markets were led, in the main, by equities performance along with gains in commodities thanks to a rise in oil prices and hedge fund event-driven activity.

The UK market also saw property hold strong ground because of a shortage of supply and a strong economy, according to Lehman.