Which software must be established as a non-admitted asset and written off over a period not to exceed the lesser of the useful life of the software or five years.

Question

Options

• ANon-reliable system
• BNon-secure system
• CNon-operating system
• DNon-expensed system

• A
  9% (4)
• B
  6% (3)
• C
  83% (39)
• D
  2% (1)

Explanation

Non-operating system software (option C) is correct because, under statutory accounting principles (SAP) used by insurance regulators, application software that is not part of the core operating system is classified as a non-admitted asset - meaning it cannot count toward an insurer's surplus and must be amortized over the lesser of its useful life or five years (per SSAP No. 16R).

Options A, B, and D are incorrect because "non-reliable system," "non-secure system," and "non-expensed system" are not recognized regulatory or accounting classifications in statutory insurance accounting - they are plausible-sounding distractors that don't correspond to any real asset category under SAP.

Memory tip: Think of it this way - the operating system runs the hardware and is treated like equipment (admitted), but non-operating system software (your apps and programs) is considered too intangible and illiquid for statutory purposes, so regulators make insurers write it off. The phrase to lock in is: "non-OS software = non-admitted asset."

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