MasterCard 2008 Annual Report Download - page 142

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MASTERCARD INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
(In thousands, except percent and per share data)
Although MasterCard holds collateral at the member level, the Cirrus and Maestro estimated settlement
exposures are calculated at the regional level. Therefore, these settlement exposures are reported on a gross basis,
rather than net of collateral.
Of the total estimated Settlement Exposure under the MasterCard brand, net of collateral, the U.S. accounted
for approximately 49% and 43% at December 31, 2008 and December 31, 2007, respectively. The second largest
country that accounted for this Settlement Exposure was the United Kingdom, at approximately 10% and 11% at
December 31, 2008 and December 31, 2007, respectively. Of the total uncollateralized Settlement Exposure
attributable to non-compliant members, five members represented approximately 48% and 64% at December 31,
2008 and December 31, 2007, respectively.
MasterCard guarantees the payment of MasterCard-branded travelers cheques in the event of issuer default.
The guarantee estimate is based on all outstanding MasterCard-branded travelers cheques, reduced by an
actuarial determination of cheques that are not anticipated to be presented for payment. The term and amount of
the guarantee are unlimited. MasterCard calculated its MasterCard-branded travelers cheques exposure under this
guarantee as $446,679 and $563,087 at December 31, 2008 and 2007, respectively. The reduction in travelers
cheques exposure is attributable to a decision by the Company’s two largest issuers to stop selling MasterCard-
branded travelers cheques.
A significant portion of the Company’s travelers cheques risk is concentrated in one MasterCard travelers
cheques issuer. MasterCard has obtained an unlimited guarantee estimated at $348,995 and $452,134 at
December 31, 2008 and 2007, respectively, from a financial institution that is a member, to cover all of the
exposure of outstanding travelers cheques with respect to such issuer. In addition, MasterCard has obtained a
limited guarantee estimated at $15,949 and $18,004 at December 31, 2008 and 2007, respectively, from a
financial institution that is a member in order to cover the exposure of outstanding travelers cheques with respect
to another issuer. These guarantee amounts have also been reduced by an actuarial determination of travelers
cheques that are not anticipated to be presented for payment.
During 2008, many of the Company’s financial institution customers were directly and adversely impacted
by the unprecedented events that occurred in the financial markets and the economic turmoil around the world
that ensued. These events present increased risk that the Company may have to perform under its settlement and
travelers cheque guarantees. The Company’s global risk management policies and procedures, which are revised
and enhanced from time to time, continue to be effective as evidenced by the historically low level of losses that
the Company has experienced from customer financial institution failures, including no losses in the last several
years. Accordingly, a negligible amount of reserves has been established as of December 31, 2008 and 2007 to
mitigate this risk.
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