K, but what happens when some of those units die, and the animation only depicts 1 or 2 units? Do they still receive the swarm bonus from 9?

It could be set to take into account the number of figures currently alive in the stack, as I think the game keeps track of that (as it reduces unit numbers whenever HP is reduced below "HP/unit size" individual figure thresholds). 

Maybe the Sov and ONLY the Sov could be immune to the Swarming power, due to the power of their essence?  I'm okay with the Sov being a special unit, so this could be a good way of distinguishing the Sov from run-of-the-mill champions, and allow Sauron-type leaders to be unlike lesser kin.

Swarming if it's implemented, should be limited to unmounted melee units, and should penalize init.  Chance of swarming should be based on unit size and unit level.  Defender trait should gain a promotion that increases the chance of swarming.  Being on a horse/warg increases the chance of being swarmed.  Swarming should apply to all single units that don't have the overpower trait.  Growth should increase the chance of swarming, shrink reduces it. 

Graceful should negate swarming.

I like where is is going.

i could imagine something like every enemy unit adjacent to you lowers your defense a bit. And a party would count as 3 for instance.  

Perhaps it is easier to code a bonus to the armor penetration. Groups could have these abilities:

3 person group:

+ 0 initiative, + 0 dodge, + 0 accuracy if the target is a single unit, + 15 % armor penetration

5 person group:

- 2 initiative, - 10 dodge, + 10 accuracy if the target is a single unit, + 20 % armor penetration

7 person group:

- 4 initiative, - 20 dodge, + 20 accuracy if the target is a single unit, + 25 % armor penetration

9 person group:

- 6 initiative, - 30 dodge, + 30 accuracy if the target is a single unit, + 30 % armor penetration

However, if a group of units has been reduced in number of figures, the number of figures is what should be used I think.  After all, the game does keep track of the number of figures for the graphical display and the amount of attack, so you could use the number of figures that are shown.

Is the FE engine capable of calculating this tactically (rather than per attack). I would like to see something that takes into account the number of units in the tiles around you. If the numbers are about even, then no penalty. If your unit is facing off alone against say 3x their number then they get a debuff (swarmed) and lose initiative.

Similarly,if there are units on three sides of your unit you get the debuff (flanked) which would reduce armor and accuracy.

That would be much nicer andsophisticated (IMHO, of course) than giving units swarm ability. And it would make more sense when armies of units and heroes meet. Two armies of one hero and two 9x units face off. If they're standing toe to toe, it doesn't seem right that the debuff applies when one of those 9x units attacks the hero.

I'm thinking FE probably can't do that though. And while I'm not a fan of making units a counter to heroes, implemented reasonably the op!'s suggestions could be not game breaking.