(Corrects to show rating on Radian Asset Assurance was cut three notches to "A3," not "Aa3")

NEW YORK, June 25 (Reuters) - Moody's Investors Service on Wednesday cut its ratings on Radian Group (RDN.N: Quote, Profile, Research) to junk territory, and also cut Radian's bond insurance and mortgage insurance arms, though they remain investment grade.

The rating action "reflects the deterioration in Radian's capital adequacy and medium term profitability prospects, as well as the firm's limited financial flexibility," Moody's said in a statement.

"While mortgage insurance demand and new business quality have both improved in recent months, performance of Radian's exposures originated prior to 2008 has eroded capitalization and those exposures remain vulnerable to further economic deterioration," Moody's added.

Moody's cut its ratings on Radian Group's senior debt five notches to "Ba1," one level below investment grade, from "A2" and cut its insurer financial strength ratings on its bond insurance arm, Radian Asset Assurance, three notches to "A3," the seventh highest investment grade.

"The downgrade of Radian Asset reflects deterioration in the financial guaranty company's franchise value and the prospect that its capital adequacy may be negatively affected given management's announcement that the subsidiary will likely cease writing new business and will serve as a potential source of capital for Radian's mortgage insurance platform," Moody's said

Moody's also cut Radian's mortgage insurers Radian Guaranty and American Guaranty two notches to "A2," the sixth highest investment grade, and cut Radian Insurance four notches to "Baa1," three steps above junk.

The outlook for all ratings is negative, indicating an additional downgrade is still likely over the next 12 to 18 months. (Reporting by Karen Brettell; Editing by Leslie Adler)