Playthrough on challenging/challenging, as Magnar.
AI was severely gimped by losing multiple cities to wandering monsters.
In the early game, I was able to snag a prime fortress spot from Verga without a fight after a couple of ophidians stomped all over the city he settled there. Verga also accidentally unleashed a nearby forest drake, but luckily for me it headed in the opposite direction, likely destroying more Yithril cities in its path. I ended up with a nice fortress right on the front line, and signed a non-aggression pact with Verga to buy time.
I then proceeded to wipe out the kingdoms. Tarth posed no threat due to a crappy starting location and some rock spiders controlling any attempts at expansion. Pariden was quite a powerhouse, and still Procipinee settled two cities right on the edge of wildlands, and lost both to some bored elementals. She also released a shrill lord, who was wandering between her cities looking for something to destroy; I eventually took him out before conquering the remaining territory.
With the kingdom threat eliminated, I turned my attention back to Verga, only to discover that his previously thriving border town -- a sister city to my "stolen" fortress -- was now a smoldering pile of rubble. Although Yithril is now aggressively settling and re-settling, the loss of some well developed cities in strategically important locations set them back significantly.
Add this to the same pile as immortal champions.
Losing cities to monsters is much more damaging to the AI than it is to the player; the player seems better equipped to defend against smaller threats (bandits, bears, spiders), and also makes better choices when settling near the more deadly ones.
Don't let monsters auto-raze cities.
Instead, have them ravage the population by eliminating one citizen for every point of army attack remaining after the city siege battle. Raze the city only if population drops to zero. Of course, monsters remain in the area, so if you don't dispatch an army soon you may still end up losing the city to repeated attacks.
Some sample numbers:
- A bear (10-20 attack) might not be able to wipe out an entire village, but it can kill enough people to set back growth by a decade.
- A giant spider army (40-80 attack) might reduce a level 2 city to half its former glory.
- A drake army (100-200 attack) might turn a level 2 city to rubble, but a larger city will still stand.
- Once a city reaches level 4-5, it should take nothing short of a pack of ashwake dragons, or an elemental lord, to completely destroy it.
These numbers need testing and tweaking; perhaps a citizen for every two points of attack is more appropriate.
Of course in addition to this, AI should be smart enough not to settle near drake lairs in the first place, at least not until it is ready to take them on.