UPDATE 2-Three Japan insurers in merger talks - TV

(Adds more details, background)

TOKYO, Dec 28 (Reuters) - Japan's Mitsui Sumitomo Insurance Group Holdings Inc (8725.T: Quote, Profile, Research), Aioi Insurance Co Ltd (8761.T: Quote, Profile, Research) and Nissay Dowa General Insurance Co Ltd (8759.T: Quote, Profile, Research) are in final talks on merging under a holding company as early as next autumn to form the country's top non-life insurer, national broadcaster NHK reported on Sunday.

Automobile and housing sales have been sluggish amid the economic downturn, hitting demand for car and fire insurance and weighing on the profitability of non-life insurers, prompting them to seek ways to boost competitiveness.

The three aim to reach a basic agreement on the deal as early as next month, NHK added.

Officials from the companies were not immediately available for comment.

The merger of Japan's No.2, No.4 and No.6 non-life insurers would create the biggest player in the domestic market with net premium revenue of about 2.7 trillion yen ($29.8 billion). That would surpass current top non-life insurer Tokio Marine Holdings Inc (8766.T: Quote, Profile, Research) by 22 percent.

Net premium revenue is roughly equivalent to income from policyholders minus the amount the company itself pays for reinsurance.

Besides slower demand for auto and fire insurance, a sharp slide in the value of their securities holdings has weakened casualty insurers' financial standing, giving them another reason to join forces to survive.

Aioi fell into a net loss in the business year that ended in March due to subprime loan-related losses. (Reporting by Kiyoshi Takenaka and Hugh Lawson)