The third general in charge of fighting the rebels was Alexius Branas, who, in turn, rebelled and turned on Constantinople. Isaac defeated him with the help of a second brother-in-law, Conrad of Montferrat, but this civil strife had diverted attention from the rebels and Isaac was able to send out a new army only in September 1187. The Byzantines obtained a few minor victories before winter, but the rebels, helped by the Cumans and employing their mountain tactics, still held the advantage.

In the spring of 1187, Isaac attacked the fortress of Lovech, but failed to capture it after a three-month siege. The lands between the Haemus Mons and the Danube were now lost for the Byzantine Empire, leading to the signing of a truce, thus de facto recognising the rule of the Asen and Peter over the territory, leading to the creation of the Second Bulgarian Empire. The Emperor's only consolation was to hold, as hostages, Asen's wife and a certain John (future Kaloyan of Bulgaria), brother of the two new leaders of the Bulgarian state.