my reaction would depend on the circumstances, the motivation of my child and what they were getting out of it.
for example, if they came across an insect and were very young and didnt really know what it was, that it was alive, what 'alive' means or understand the idea of causing pain, then i would be quite laid back. i would take the opportunity to explain about living creatures (if i hadnt already), i would try to get them to put themselves in the creatures shoes (so to speak!!), and think about being hurt or scared.
If they were, say, pulling wings off a fly thru morbid curiosity, i would not be laid back, but wouldnt be booking a therapist, but i would want them to understand that they were causing pain and suffering and that they do not have that right, regardless of how 'unimportant' they view the creature.
If they were abusing a living creature because they knew what they were doing would cause it fear or pain and suffering, and they wanted to see this, or rather, enjoy this - then i would be horrified and it would be time for some major action. I would seek professional help.
you see? depends on the whys and wherefores, not really a 'one size fits all' type of response!