BEIJING - China's insurance regulator said Tuesday it will find and defuse hidden risks in the use of insurance funds, a fresh move to tighten supervision of the multi-trillion dollar sector.

Authorities will stop the illegal use of insurance funds, keep the leverage ratio under control and fill regulatory gaps, according to a statement from the China Insurance Regulatory Commission (CIRC).

Inspections will be focused on major investment in stocks, equities, real estate, alternative and financial products as well as overseas investment.

The sector will be screened for compliance risks, regulatory arbitrage, asset-liability mismatches and other major risks.

Those who violate laws and regulations will receive the maximum punishment.

Chinese insurers grabbed headlines for using leveraged money to buy shares in listed companies, triggering sharp volatility in the market late last year.

Tuesday's move came two days after the CIRC called for a strict and effective supervision framework, pointing out that regulatory loopholes had given rise to risky practices.

It was also part of the deleveraging of China's economy to ward off financial risks after years of a relatively eased monetary stance.

In Tuesday's statement, the CIRC said insurance funds should serve the real economy and help supply-side structural reform.

By the end of December, the combined assets of China's insurance sector totalled 15.12 trillion yuan ($2.2 trillion), official data showed.