Announced in December, S&P’s proposed changes are wide-ranging, but the most criticism centers on how the firm will size up life insurers’ investment portfolios. S&P would lower, or downgrade, the ratings on securities that the firm itself hasn’t rated. This analysis feeds into its assessment of the overall soundness of a carrier. 

Firms like S&P get paid for rating bonds. The harshest critics contend S&P is trying to grab market share, in the guise of improving its model. 

S&P says that isn’t so. The goal is “to improve our ability to differentiate risk,” a spokesman said. The last overhaul was 12 years ago, and the changes would bring the model more in line with its global methodology for assessing insurers.

Responses poured in during S&P’s comment period, which it has extended by two months to April 29 to allow for more feedback.

How S&P sizes up risk in the insurance industry is no small thing. It is one of the major firms issuing “financial strength ratings,” which agents and brokers rely on to determine which carriers they recommend to their clients. Its credit ratings, meanwhile, determine companies’ cost of borrowing money. 

Other firms like A.M. Best Co., Fitch Ratings and Moody’s Investors Service perform the same roles. A risk to S&P, if the proposed changes go through, is that it might lose some business, critics said. The rivals declined to comment.

S&P’s effort takes on more significance because it is expected to hit some of the investments that insurers have used to boost returns amid low interest rates. These include privately issued securities, collateralized loan obligations and asset-backed bonds.

S&P continues to be the most dominant ratings firm overall in terms of total ratings issued, but some smaller rivals have gained notable market share since 2011 in the asset-backed securities category, according to a January report on the ratings firms by the Securities and Exchange Commission. The firms have made headway in sectors such as auto loan, aircraft and solar asset-backed securities, data show.

Much of the industry’s tilt toward nontraditional investments has been fueled by private-equity firms that have acquired or taken large stakes in life insurers in recent years. State regulators’ concerns about ratings quality emerged last year, and since January, the standard-setting National Association of Insurance Commissioners has required insurers to file details of credit ratings for privately issued securities. 

In short, S&P proposes to notch down, and sometimes entirely set aside, credit ratings from other firms, treating some securities as junk even if a competitor rated them as investment-grade. In general, S&P would give more favorable treatment to securities rated by Moody’s and Fitch, on the basis that it has more data on their ratings than it does for DBRS Morningstar, Egan-Jones Ratings Co. and Kroll Bond Rating Agency LLC. 

In an April 14 letter, 26 congressional Democrats and Republicans asked the SEC to look into S&P’s move. “Many impacted stakeholders have expressed concern that this treatment of investments is potentially anticompetitive, and we share this concern,” the group wrote to SEC Chairman

Gary Gensler.

The lawmakers asked Mr. Gensler to make sure there is “free and fair competition.” 

Some insurers complain that S&P hasn’t provided data to justify its proposed changes. “Our overarching concern is we believe that asset charges need to reflect a data-driven analysis,”

Mariana Gomez-Vock,

a vice president at lobbying group American Council of Life Insurers, said in an interview.

 “The S&P ratings penalty for non-S&P ratings is a poorly conceived solution to a legitimate concern,” said

Aaron Sarfatti,

chief risk and strategy officer at life insurer Equitable Holdings Inc.

Write to Leslie Scism at leslie.scism@wsj.com