Britain will relaunch a parliamentary inquiry into the near-collapse of life assurer Equitable Life, raising the possibility of government compensation, the UK parliamentary ombudsman said yesterday.

Equitable, which has between 20,000 and 25,000 Irish members, almost went under in 2000 after Britain's highest court ordered it to honour guaranteed policies sold in the high-interest-rate years of the 1970s and 1980s. The decision cost the company more than £1.5 billion sterling.

Britain's parliamentary ombudsman, who can recommend government compensation for losses caused by poor regulation, said she had decided to launch a second, more extensive probe after a recent report into Equitable by Judge George Penrose was highly critical of the lax regulatory environment.

"I took the view that I should consider whether a new investigation by my office was justified as Lord Penrose did not deal with questions of maladministration or redress," Ms Ann Abraham said in a statement.

Last year, Ms Abraham cleared the country's regulator, the Financial Services Authority of claims that it had failed to protect savers from the crisis at Equitable but her inquiries were very limited in scope.

After months of lobbying by politicians and policyholders, Ms Abraham has extended her investigation to consider the role played by the Treasury and the Department of Trade and Industry, which supervised the society before the FSA. The FSA will not be investigated.

She has also asked the government to allow her to investigate the Government Actuaries Department, which advised Equitable on insurance.

Equitable Life welcomed the ombudsman's decision.

"Our policyholders will be pleased that a fresh, independent review is underway that can determine whether the regulators were at fault and government compensation should be payable," chief executive Mr Charles Thomson said in a statement.

A spokesman for the Treasury said it would co-operate fully with the ombudsman.

Ms Abraham said she could not give a deadline for when the inquiry would be finished as it would take some time to resolve whether she would be allowed to investigate the Government Actuary Department.

The inquiry will not cover the society's former management, which was also harshly criticised in the Penrose Report, nor the allegations that Equitable mis-sold policies.

Last week, a group of Equitable Life policyholders lodged a court claim seeking compensation from the insurer for loss of income after the world's oldest mutual life-assurer cut payments to keep itself solvent.