NEW YORK, June 19 (Reuters) - Moody's Investors Service on Thursday stripped the insurance arms of Ambac Financial Group ABK.N and MBIA Inc MBI.N of their Aaa" ratings, citing their impaired ability to raise capital and write new business.

Moody’s said earlier this month it was likely to cut the ratings of Ambac Assurance Corp and MBIA Insurance Corp as plunging share prices and the high cost of accessing the debt markets made it challenging for the two largest bond insurers to raise new capital.

Demand for their insurance wraps has also effectively dried up on concerns over losses the companies will take from insuring risky residential mortgage-backed debt.

Standard & Poor’s stripped both insurance arms of their top ratings on June 5.

Moody’s cut Ambac Assurance three notches to “Aa3,” the fourth highest investment grade, and downgraded Ambac Financial three notches to “A3,” the seventh highest investment grade, from “Aa3.”

MBIA Insurance was cut five notches to “A2,” the sixth highest investment grade, and MBIA Inc was cut five notches to “Baa1,” three steps above junk, from “Aa2.”

The outlook for all companies is negative, due to uncertainty of their ongoing business plans. A negative outlook indicates an additional downgrade is more likely over the next 12-to-18 months.

Ambac has said it wants to launch a new top-rated bond insurer, called Connie Lee, and MBIA has said it retained at the holding company level $900 million in capital that had been previously earmarked for its bond insurance arm as it reevaluates its options.