Actually you do have a way into the water, ice plate dragons are amphibious.
Speaking of which, I think they might want to get a #watershape, because at the moment they fly when underwater, which can be a little strange when you have a bunch of them rise up out of the ocean and fly several provinces away. It would also be nice if you had some recruitable amphibious troops, or maybe recruitables that you can only but underwater. Something like a sea serpent?
I agree with loren that the PD should probably be changed. Partly because there really is no point in ever buying more than 1 point of pd... the wyrmlings are just too much cannon fodder, basically they just make the commander flee. It also seems unthematic for dragons to have their young defend against attacks. It would make more sense if the pd was sort of there to guard the wyrmlings... you could keep wyrmlings in there but there should be something meaner to discourage you from killing them.
If you nerf the bonebiters a lot you should take a close look at steel dragons too, they're not too much worse and much more massable. And consider giving poison ivy dragons a boost to their supply bonus so it's easier to fight ermor
The dragons are definitely overpowered in their present state though. I'm playing a game right now with all mighty AIs, and I'm bordered by ermor, gath, and r'lyeh. I've been fighting them for 15+ turns (it is turn 37), the war is annoying because I have to attack into their territory, then fly back out, then in, etc because of supplies. So it's not really going anywhere, and I keep thinking to myself I should just attack gath to get more money to kill ermor with, because I've been stuck with approximately the same amount of territory/money I had at the start of the war due to their evil dominion. They are actually the first nation I've fought able to kill my bonebiters in any significant number, but the best they can do is keep my numbers basically flat, and I am recruiting only ~10 dragons a turn due to upkeep. If I was not working so hard at research I could pull out all my poison ivy dragons and actually make some progress against them, but I really want to do a lot of research in this game and try to get access to the stronger dragons.