Prob the first. You get a certain amount of points to allocate for troops / commanders to carry forward from battle to battle. You might have a commander that gets high enough level that he takes up too many points to keep - though I haven't come close to that. Had a demon lord with me that lasted about 20 battles and died when he got too close to an exploding portal and the game ended as I scrambled to re-load it (it deletes the save upon ending). It was a traumatic loss - not many games make you feel the pain like that. I've learned not to get to attached to my generals after that tearful goodbye.
