By Clara Ferreira-Marques

LONDON (Reuters) - The government should apologise to more than a million policyholders in Equitable Life and offer them compensation, a long-awaited report by the parliamentary ombudsman said on Thursday, almost a decade after the insurer's near demise.

The country's oldest mutual insurer, with 1.5 million policyholders at its peak, almost collapsed in 2000 after being forced to honour unsustainable guarantees stretching back 30 years. It eventually closed to new business in one of the country's most dramatic financial scandals.

Thursday's report by parliamentary ombudsman Ann Abraham, who has been investigating the case for four years, will not guarantee a payout for all policyholders and further delays are expected but it should hearten those who have campaigned for years for government compensation.

"(Those) responsible for undertaking financial regulation should act in a way that is compatible with the duties and powers which parliament has conferred on them," she said.

"Those responsible for the prudential regulation of Equitable Life failed to do so throughout the period covered in my report," Abraham said on Thursday.

The Treasury said it would not rush into a decision on the recommendations. The Financial Times said policyholders' claims amounted to around 4 billion pounds.

"The length and complexity of the report mean that the government will need to consider the report carefully before giving its response in the autumn," economic secretary to the Treasury Kitty Ussher said.

FAILURE