(1) Any domestic insurance company operating on other than the stock plan may cede its business to another licensed insurer, whether stock, mutual, assessment, or reciprocal exchange, by a contract of bulk reinsurance upon compliance with this section.

(2) Such contract of bulk reinsurance shall not become effective unless first filed with and approved by the director and thereafter approved by a majority vote of the members of the ceding company present in person or by proxy and voting at an annual meeting or at a special meeting called for that purpose. The director shall not approve such contract unless he or she finds it to be fair and equitable to the policyholders of each insurer involved. If the director does not so approve, he or she shall notify each insurer involved in writing specifying his or her reasons therefor.

(3) Contracts of bulk reinsurance whereby an insurer operating on other than the stock plan of insurance cedes its business to a stock insurer shall provide for distribution to each policyholder of the ceding company of his or her equity in the surplus funds, if any, of such ceding company as determined under a fair and equitable formula approved by the director.