With the prediction of a very active hurricane season on the horizon, a report on catastrophe bond activity shows 2010 second-quarter transactions were the second most active on record, but outstanding capital is down.

In its report on the cat bond market, titled "Catastrophe Bond Update: Second Quarter 2010--Activity Surges," Guy Carpenter Securities, part of reinsurance broker Guy Carpenter, which is a subsidiary of Marsh & McLennan Companies, said there were eight cat bond transactions completed in the second quarter of this year for a total of $2.05 billion.

This was the second most active second quarter on record, Guy Carpenter said, but despite this activity, total capacity has dropped slightly.

The report said total risk capital in down less than 1 percent, or $105 million, compared to the first quarter. It is down 5.5 percent, or $693 million, compared to year-end 2009.

Guy Carpenter said while some investors are not reinvesting their returns, and the appetite for U.S. wind risk is limited, "there is significant investor appetite" for other vehicles covering U.S. earthquake risks, European windstorms, and Japanese wind and earthquake perils.

Investors also faced U.S. wind exposure limitations or sought to sell their exposures in the secondary market.

"The number of catastrophe bond investors continues to increase, as does the size of assets under management," Bill Kennedy, global chief executive officer of Analytics, Capital Markets, Specialty Practices and Advisory of Guy Carpenter, said in a statement. "We saw this heightened interest, coupled with very favorable issuance conditions, bear fruit in the second quarter of 2010, as issuance activity remained robust week over week.

"Whether this momentum will continue through the fourth quarter and into 2011 depends on a number of factors, including the Atlantic hurricane season and broader market conditions, but it is fair to say that the catastrophe bond market continues to advance, innovate and welcome new participants--all healthy signs."

Among some of the eight transactions Guy Carpenter noted, Chartis had a first-time offering totaling $425 million for U.S. hurricane and quake. The only non-hurricane cat bond offering was made by State Farm for $350 million covering New Madrid earthquake.