Canada Life Ireland, a unit of Canada's second-largest life insurer Great-West Lifeco (GWO.TO: Quote), is the lead candidate buy Irish Life & Permanent's (IPM.I: Quote) insurance arm, a source close to the matter said on Friday.

Bancassurer Irish Life & Permanent has put its life business, the jewel in its crown, up for sale after stress tests as part of an EU-IMF bailout revealed it had a capital hole of 4 billion euros ($5.4 billion).

The life business has an embedded value of around 1.6 billion euros.

Finance buyout firm J.C. Flowers in a partnership with private equity firm Apollo Global Management (APO.N: Quote) and U.S. insurer Unum (UNM.N: Quote) were also interested in the business ahead of second round bidding in October, a separate source said last month.

The company's board and Ireland's department of finance will consider the bids.

Irish Life & Permanent, Great-West Lifeco and the finance ministry all declined to comment on the bidding.

Finance minister Michael Noonan told Reuters last month he hoped to have a deal for Irish Life concluded before the parliamentary term ends in mid-December.

The government is also developing an action plan to strengthen the restructuring plan of Irish Life's banking arm, according to documents obtained by Reuters on Thursday.

The documents, presented to the budget committee of the German lower house of parliament ahead of the disbursement of fresh bailout funds, stated the government would complete its assessment of the challenges facing the banking group by the end of the year.

($1 = 0.739 euro)