Capital in the catastrophe bond market declined in the first half of the year despite a surge in second-quarter issuances, reinsurance brokerage Guy Carpenter & Co. L.L.C. said Monday in an analysis.

Eight catastrophe bond transactions totaling $2.05 billion were completed in the second quarter, making it the second-most active quarter on record, according to “Cat Bond Market Update: Second Quarter 2010” by New York-based Guy Carpenter.

Despite the activity, capital outstanding in the cat bond market has declined 5.5% since the end of 2009 to $11.82 billion, according to the report.

The $2.05 billion in new bonds was outpaced by $2.16 billion in maturities, which Guy Carpenter said was the second consecutive quarter of declining capital despite strong investor demand for new bonds.

Although most of the bonds issued during the quarter covered U.S. wind risks, current investor appetite for that exposure is limited, according to the report. Significant interest remains in bonds to cover U.S. earthquake, European wind, and Japanese wind and earthquake perils.

“The number of catastrophe bond investors continues to increase, as does the size of assets under management,” Bill Kennedy, global CEO of analytics, capital markets, specialty practices and advisory at 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,” Mr. Kennedy said. “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.”

Of the second-quarter total, $1.7 billion was for U.S. hurricane exposures and $350 million for earthquake risks along the New Madrid fault.

Just one new sponsor, Chartis Inc., entered the market in the second quarter with its $425 million Lodestone Re Ltd. transaction covering U.S. hurricane and earthquake risks, according to the report. Repeat sponsors issued the seven remaining bonds.

Cat bond activity is expected to be light for the third quarter, in keeping with historical trends. If cat bonds remain competitive with other alternative risk transfer markets, second-half issuance should be between $1.7 billion and $3.7 billion, according to the report, which is available at www.gccapitalideas.com.