Tennessee Code Title 56. Insurance § 56-2-207

(a)(1) Every insurer authorized to do an insurance, surety or bonding business in this state, called the “ceding insurer” in this title, may, subject to the limitations of this section, reinsure its risks and policy liabilities in any other insurer, called the “assuming insurer” in this title, with the effects prescribed in this section; but no prohibition or limitation contained in this section shall invalidate the contract or reinsurance as between the parties.

(2) No credit shall be allowed, as an admitted asset or as a deduction from liability, to any ceding insurer for reinsurance made, ceded, renewed, or otherwise becoming effective after June 12, 1947, unless the reinsurance is payable by the assuming insurer on the basis of the liability of the ceding insurer under the contract or contracts reinsured without diminution, because of the insolvency of the ceding insurer nor unless, under the contract or contracts of reinsurance, the liability for the reinsurance is assumed by the assuming insurer or insurers as of the same effective date.

(3) The reinsurance agreement may provide that the liquidator or receiver or statutory successor of an insolvent ceding insurer shall give written notice of the pendency of a claim against the insolvent ceding insurer on the policy or bond reinsured, within a reasonable time after the claim is filed in the insolvency proceeding and that during the pendency of the claim, any assuming insurer may investigate the claim and interpose, at its own expense, in the proceeding where the claim is to be adjudicated, any defense or defenses that it may deem available to the ceding company or its liquidator or receiver or statutory successor.

(4) The expense thus incurred by the assuming insurer shall be chargeable, subject to court approval, against the insolvent ceding insurer as part of the expense of liquidation to the extent of a proportionate share of the benefit, which may accrue to the ceding insurer, solely as a result of the defense undertaken by the assuming insurer.