(1)    Permitted and prohibited reinsurance. A town mutual may cede reinsurance only to an insurer authorized to do business in this state under ch. 611 or 618, or under arrangements which are approved in advance by the commissioner and which are subject to the controls the commissioner prescribes.

   (2)   Required reinsurance.

      (a)    Windstorm and hail insurance. If a town mutual provides coverage against windstorm or hail, or other perils involving a similar potential for catastrophic losses, which are designated by the commissioner by rule, it shall obtain reinsurance for each such risk or else stop-loss reinsurance with an insurer authorized to do such business in this state, to an extent or in an amount specified by the commissioner by rule. The commissioner may prescribe detailed requirements for such reinsurance by rule or by order.

      (b)    Nonproperty insurance. To the extent that a town mutual provides insurance under s. 612.31 (3), it shall obtain reinsurance of at least a 90 percent proportional share of each risk or it shall obtain excess of loss reinsurance with a retention in a similar dollar amount with an insurer authorized to do such business in this state, in either instance not to exceed $25,000 on each risk. The commissioner may permit a town mutual to retain a larger percentage or have a greater excess of loss retention level if he or she finds that the interests of the members will not be endangered thereby, or may require it to reinsure a larger percentage or obtain a lesser excess of loss retention level if he or she finds that the interests of the members make it advisable. The commissioner may by rule require other reinsurance.

      (c)    Information for policyholder. Each policy providing coverage reinsured under par. (a) or (b) where the reinsurance is specifically applicable to the policy shall contain a clause advising the policyholder of the existence of the reinsurance and of his or her right to obtain the name and address of the reinsurer and the terms of the reinsurance.

      (d)    Contents of reinsurance contract. Each required reinsurance contract that is specifically applicable to particular direct policies shall contain the following provisions:

         1.    That any claimant who could recover from the town mutual may, if the town mutual would be unable to fully satisfy its financial obligations to the claimant, recover from the town mutual, the reinsurer, or both, and that the claimant may recover from the reinsurer in the same way that he or she could recover from the town mutual but only in the amount for which the reinsurer is liable according to the terms of the reinsurance contract; and

         2.    That there shall be no diminution in the amount recoverable from the reinsurer under subd. 1. as a result of any delinquency proceedings pertaining to the town mutual, nor as a result of a breach of the reinsurance contract by the town mutual.

      (e)    Approval of reinsurance contract. Every reinsurance contract required under this subsection shall be on a form approved by the commissioner under s. 612.51. The commissioner shall approve the form unless he or she finds that it would be contrary to the law or to the interests of insureds or the public.