For most of 2009, life insurance companies have been a shrinking presence in the multifamily debt industry.

Like the majority of portfolio lenders, life insurance companies took a step back this year, hoping to ride out the recession while bowing to the superior executions offered by Fannie Mae, Freddie Mac, and the Federal Housing Administration.

But over the past month, the sector has begun to stir again. Some of the companies that have become more active in the commercial real estate market include Guardian, Allianz, Cigna, Prudential, 40/86 Advisors, and Aetna.

“There are more insurance companies that are now coming back and sticking their toes in the water,” says Craig Butchenhart, president of Minneapolis-based Northmarq Capital, which sources debt through correspondent relationships with dozens of life insurance companies.

Many insurance companies are now offering 10-year, fixed-rate loans in the 6.5 percent to 6.75 percent range. While those prices are still much wider than what the government-sponsored enterprises (GSEs) offer, it represents a 100 basis point improvement over the rates that most life companies were quoting at the start of the year.

The lower rates can be partially attributed to the fact that many life insurance companies are more confident about the economy, and their own immediate futures, than they have been for more than a year. “They’re now not as concerned about their survival and are re-examining their credit situation, and feel they’ve been too far out of the box,” Butchenhart says.

In the past, many life insurance companies won deals for transitional assets—properties still in lease-up, for instance—since Fannie Mae and Freddie Mac have always privileged stabilized properties. But the life insurance sector hasn’t yet jumped back into the transitional space since, like all lenders, they’re looking for the least-risky business this year.

The loan-to-value ratios offered by insurance companies currently remain in the 60 percent to 65 percent range, while the GSEs still go above 70 percent. “The box is still pretty narrow,” Butchenhart says. “All of them would love to do multifamily business, but they’re not that competitive as long as Freddie and Fannie are where they are.”

While the tight credit box will hamper the sector’s ability to compete with the GSEs, that same conservative approach has served the industry well. Insurance companies have been able to weather the current storm much better than their lending brethren. The 60-day delinquency rate on commercial real estate loans held by life insurance companies was just 0.15 percent in July, among the lowest in the industry (compared to 0.51 percent for Fannie Mae, and more than 3 percent in the CMBS industry).

Northmarq is a Freddie Mac lender and also sources Fannie Mae debt through Omaha, Neb.-based lender AmeriSphere, of which it is a minority owner. Between Freddie Mac and Fannie Mae, the company produced more than $1.5 billion in deals this year, but has done less than $50 million in life insurance debt for multifamily thus far.

Still, the lower rates bode well for multifamily borrowers, giving the industry more liquidity and more choices, should they have a deal that neither Fannie Mae nor Freddie Mac smile upon. And life insurance companies may be more willing to consider small loans of less than $3 million. The deals that Northmarq have done with life insurance companies this year were all smaller deals that the GSEs weren’t interested in.