Catastrophe bonds are becoming a progressively cheaper form of reinsurance as the dynamics of the insurance-linked securities (ILS) sector change.

That is the view of Tony Ursano, chief executive officer of Willis Capital Markets and Advisory (WCMA), one of the firms that structures ILS deals.

Mr Ursano was speaking after strong investor demand allowed California’s California’s State Compensation Insurance Fund to upsize the offering of its Bermuda-based special purpose insurer, Golden State Re II.

The four-year, $250 million cat bond was structured by Willis Capital Markets & Advisory and provides fully collateralised protection for workers’ compensation against California earthquake. It is listed on the Bermuda Stock Exchange.

The deal was initially set for $150 million, but that changed after demand from the capital markets and allowed the bond to settle in at the lower end of its 2.2 percent to 2.7 percent pricing guidance, WCMA said.

“The pricing that state fund was able to obtain on Golden State Re II highlights the rapidly changing dynamics in the ILS landscape over the last three years,” Mr Ursano said in a statement. “For a similar layer that was placed in 2011, state fund was able to obtain 25 percent more capacity while pricing dropped more than 40 percent.”

An Aon Benfield Securities report released earlier this month found that alternative capital now has a market share of about 20 percent in the global reinsurance market. The report found that over the 12 months ending June 30, the period for which Aon analysed the market, there was $9.4 billion of catastrophe bond issuance, which is a 41 percent increase over the previous period.