Yeah I remember this troupe but I interpreted this bug tamer as being an eccentric, just like an entertainer has to be !
I don't recall if it was implied as an altmeri cultural fact. For me it was the performance of an artist who just trains and works in Valenwood - where I suspect the bosmer for bug farming. Adaptation to his public ?
There are too other quest dealing with kwama in the AD at least :
Maybe altmer do breed insects, but retaking dunmeri species seems irrelevant, don't you think ? The bright Altmer in dull mines ? poor peasants who will take care of that... It may just be an "import" - exotic stuff from far east.
If I were a dev I would rather put high elves breeding giant dragonflies, butterflies, bees and ornamental caterpillars instead of this.
(I still like to imagine miror features between the dunmer and the altmer )
He might have just raised those individual Shalk in the Summerset Isles. I'll admit it's been a while since I did that quest, but as it's basically a traveling circus it would make sense to have creatures that were exotic to the local.
Re: Kwama, I seem to recall importing those was an experiment because they wanted to use them for traditional mining - the dirt or whatever they eat occasionally contained gold and gems. *digs* Here is it, although it's written by Cirantille so bring your salt shaker.
I don't know if it can be considered canon and this is a little off topic, but the Imperial Library has a section of cut content from Summerset you might find interesting.