(1) Subject to Subsection (2), a credit for reinsurance ceded under Section 31A-17-404 or 31A-17-404.1 is not allowed unless, in addition to meeting the requirements of Section 31A-17-404 or 31A-17-404.1, the reinsurance agreement provides in substance that if the ceding insurer is insolvent, the reinsurance is payable by the assuming insurer:
(a) on the basis of the liability of the ceding insurer under the contract or contracts reinsured;
(b) without diminution because of the insolvency of the ceding insurer; and
(c) directly to the ceding insurer or to its domiciliary liquidator or receiver.
(2) Subsection (1) applies except if:
(a) a contract specifically provides another payee of the insurance in the event of the insolvency of the ceding insurer; or
(b) the assuming insurer, with the consent of the one or more direct insureds, assumes the policy obligations of the ceding insurer:
(i) as direct obligations of the assuming insurer to the payees under the policies; and
(ii) in substitution for the obligations of the ceding insurer to the payees.