NEW YORK, June 20 (Reuters) - Moody's Investors Service on Friday cut its ratings on FGIC Corp and XL Capital Assurance, part of Security Capital Assurance SCA.N, into junk territory citing the bond insurers "severely impaired financial flexibility."

The rating cuts also reflect the risk of the insurers breaching statutory minimum regulatory capital requirements, due to increasing expectations of losses from residential mortgage-backed debt.

If their capital falls below statutory minimums they risk being seized by regulators, which would trigger the payment of insurance they have written with credit default swaps, Moody's said.

At the end of the first quarter, FGIC's statutory surplus was $366 million, which is approximately $300 million above the statutory minimum regulatory requirement, Moody's said in a statement.

Moody's "has estimated losses on FGIC's insured portfolio of residential mortgage-backed securities that are significantly higher than the company's reserves for these transactions," it said.

XLCA had had $167 million of statutory surplus at the end of the first quarter, which is approximately $102 million above the statutory minimum regulatory requirement, Moody's said.

Moody's cut FGIC's insurance strength rating four notches to "B1," four steps below investment grade, from "Baa3," and XLCA was cut eight notches to "B3," six steps below investment grade, from "A3."

The outlook for both is negative, indicating an additional downgrade is more likely over the next 12 to 18 months.

FGIC's owners include mortgage insurer PMI Group Inc (PMI.N: Quote, Profile, Research) and private equity firms Blackstone, Cypress Group and CIVC Partners LP. (Reporting by Karen Brettell; editing by Gary Crosse)