It makes no sense it keeps it's exp though, in lategame you can just que up another titan and turtle until he's done.
That sounds like a "just" type of situation to you?
I don't feel so at all. It's a VERY grave situation that must be countered immediately after you get the Titan back, or you probably loose.
The opponent's fleet that was able to kill your Titan will have proceeded to either take a lot of additional planets outside your defended area, or merrily started breaking open your figurative turtle shell and doing the obvious- taking your planets, trade routes and star bases down. This all while his own economy presumably runs mostly undisturbed because you're pretty much unable to get into a direct fleet fight, going into one outnumbered just costs you.
But the same can be said about your first capital ship. Or that FU starbase you lost might cause you the game as well.
Those are not the same as a Titan loss. You can have more than one of these, and you can buy levels / upgrades back rapidly. They're not even intended to be as much of a fraction of anyone's fire power / tanking capability as a Titan is.
Someone said this better before, but I'll do it again in my words: A Titan needs to have levels to be effective. To get to that point, Titans need to kill ships. But exactly doing that is unrealistic if a level downgrade has just taken out something like 3/4 of a fleet's worth of power from the Titan and its supporting fleet. If the opponent isn't stupid, you'll be going back or be forced back into a fight much worse than the one you already lost, fairly inevitably loosing even worse. By consequence, the game would be decided after one Titan loss. If that was actually desired, formalizing a Titan loss as a toggleable game ending condition would be okay... but not as the slow but inevitable and boring defeat that "just happens".
I don't think an immediate loss is desired, and thus the levels should stay intact - again, I feel the cost and delay with rebuilding is a very severe penalty, either way.