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@wvm
I had an almost identical letter following a minor fail to stop accident that caused about £150 damage to my car (IIRC I related it in this or a similar thread). The big difference however was that my letter gave full details of the owner and his insurance company.
When you made your report did you mention any damage for which you wanted to claim for?
Basically the letter means the police don't feel they have enough evidence to prosecute. That doesn't stop you from submitting a claim against the driver for any loss, injury, etc.