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* Irish govt gains full return of its outlay
* Great-West Lifeco expects 10 pct earnings boost
* Irish finance minister to explore further potential sales
* Great-West shares rise 2.4 pct
By Padraic Halpin
DUBLIN, Feb 19 (Reuters) - Canadian life insurer Great-West Lifeco bought state-rescued insurer Irish Life for 1.3 billion euros ($1.7 billion) on Tuesday in a deal that increases its presence in Ireland and lightens the Irish government's debts.
Ireland last year paid the same amount to take over Irish Life, formerly the insurance arm of bailed-out Irish Life & Permanent, after the euro zone debt crisis forced the suspension of its sale in late 2011.
Great-West Lifeco, which plans to merge Irish Life, the country's largest life and pensions company, with its own Irish unit, Canada Life, was the lead candidate to buy the group before pulling out of the original sale process at the height of the euro zone financial crisis.
Since then, the country's recovery has been "transformational", said Great-West Lifeco Chief Executive Allen Loney, making the opportunity to turn Great-West's relatively small Irish operation into a market leader too appealing to pass up.
"Ireland has tackled its fiscal and economic situation very aggressively... and I expect the economy to roll forward here as it gets back to speed," he told Reuters.
The sale, expected to close in July, will help to push the Irish government's debt to just below 120 percent of GDP this year, against an estimate in December that it would peak above 121 percent, the country's finance ministry said.
Irish taxpayers will be getting a full return on their investment in Irish Life, Finance Minister Michael Noonan said, adding that he would look to sell further stakes and debts in the banks that the government bailed out with 64 billion euros when a property crash ravaged the economy.
"We're not investment managers, we don't run hedge funds. Our policy position is to take out, in so far as we can, what the Irish taxpayer has put in," Noonan told a news conference, ahead of talks with investors in London this week.
"As we showed already, if we can redeem investments at par, we will redeem them ... We will explore the possible sale of further tranches of these particular assets this year."
Winnipeg-based Great-West Lifeco will fund the deal by offering $1.25 billion in subscription receipts, which entitle the holder to purchase shares of the company.
It said the acquisition would add about C$215 million ($212.90 million), or 10 percent, to its consensus forecast earnings in 2014.
Shares of Great-West rose 2.4 percent to C$27.43 on the Toronto Stock Exchange.
"With a relatively low acquisition cost... the value proposition for Great-West is compelling," DBRS analysts David Hughes and John van Boxmeer said in a note.
The deal will expand Great-West's already sizeable European segment, which includes Ireland, Britain, Germany and the Isle of Man and produced about a third of the group's operating profit last year.
Loney said the company would continue to pursue acquisitions, particularly in Britain and the United States, where Great-West owns mutual fund manager Putnam Investments.
"Our strategy is in the countries in which we operate to have a market-leading presence, or at the very least a sector-leading presence within a national market," he said.
Great-West is Canada's No. 2 life insurer by market capitalization and is controlled by the Montreal-based Desmarais family, which holds Great-West as part of its Power Corp conglomerate.
Job losses as a result of the takeover are expected to be achieved through voluntary redundancy and natural turnover among the companies' combined 2,600 employees, Loney added.