The short fiction at the end of Street Legends addresses Ares' Insect Spirit problem. A lot of the speculation here is answered, or at least strongly hinted at, in it.
Details inside the spoiler box.
The Exchange sent Roger Soaring-Owl video of Unlimitech (which I'm assuming is a subsidiary of Ares) not just experimenting on bug spirits, but also investing them into Knight Errant personnel. Soaring-Owl recognized the woman who was taken over by a mosquito spirit. He went to the Unlimitech facility to pull a "surprise inspection" and confirmed that it was true. He went to Damien Knight to demand answers, but Knight just laughed it off and bragged megalomaniacally about all the powerful biotech they could get from the bugs. So Soaring-Owl quit in protest and went to Denver.
Knight turned Soaring-Owl's protege Tyler Climbing-Bear into an insect hybrid and sent him to kill Soaring-Owl. But Knight doesn't really control the insects, and the bug wearing Climbing-Bear's face offers to cut a deal with Soaring-Owl if he'll help free their queen from the labs. Soaring-Owl refused, opened fire on the bug, and then ran like hell from it until the Zone Defense Forces blasted it.